CIHM 
Microfiche 
Series 
(IVIonographs) 


ICIMH 

Collection  de 
microfiches 
(monographles) 


Canadian  Instituta  for  Historical  MIcroraproductlon*  /  Institut  Canadian  da  microraproductions  historiquas 


Technical  and  Bibliographic  Notes  /  Notes  technique  et  bibliographiques 


The  Institute  has  attempted  to  obtain  the  best  original 
copy  available  for  filming.  Features  of  this  copy  which 
may  be  bibliographically  unique,  which  may  alter  any  of 
the  images  in  the  reproduction,  or  which  may 
significantly  change  the  usual  method  of  filming  are 
checked  below. 


D 
D 

D 

D 
D 
D 

D 

D 

D 

D 

D 


Coloured  covers  / 
Couverture  de  couleur 

Covers  Jamaged  / 
Couvert  ire  endommag^ 

Covers  resi^red  and/or  laminated  / 
Couverture  restai:r4e  et/ou  pelllculee 

Cover  title  missing  /  Le  titre  'le  couverture  manque 

Coloured  maps  /  Cartes  geographiques  en  couleur 

Coloured  ink  (i.e.  other  than  blue  or  black)  / 
Encre  de  couleur  (i.e.  autre  que  bleue  ou  noire) 

Coloured  plates  and/or  illustrations  / 
Planches  et/ou  illustrations  en  couleur 

Bound  with  other  material  / 
Reli^  avec  d'autres  documents 

Only  edition  available  / 
Seule  edition  disponible 

Tight  binding  may  cause  shadows  or  distortion 
along  interior  margin  /  La  reliure  serree  peut 
causer  de  I'ombre  ou  de  la  distorsion  le  long  de 
la  marge  int^rieure. 

Blank  leaves  added  during  restoratwns  may  appear 
within  the  text.  Whenever  possible,  these  have 
been  omitted  from  filming  /  II  se  peut  que  certaines 
pages  blanches  ajoutdes  lors  d'une  restauration 
apparaissent  dans  le  texte,  mais,  k>rsque  cela  6tait 
possible,  ces  pages  n'ont  pas  ete  filmdes. 


L'Institut  a  microfilm^  le  meilleur  examplaire  qu'il  lui  a 
ete  possible  de  se  procurer.  Les  details  de  cet  exem- 
plaire  qui  sont  peut-etre  uniques  du  point  de  vue  bibli- 
ographique,  qui  peuvent  modifier  une  image  reproduite, 
cu  qui  peuvent  exiger  une  modifications  dans  la  meth- 
ode  normale  de  filmage  sont  indiques  ci-dessous. 

r~j     Coloured  pages/ Pages  de  couleur 

I     I      Pages  damaged  /  Pages  endommagees 

I     I      Pages  restored  and/or  laminated  / 
— '     Pages  restaurees  et/ou  pelliculees 

[X7I      Pages  discoloured,  stained  or  foxed  / 
Pages  decolorees,  tachet§es  ou  piquees 

I     I      Pages  detached  /  Pages  d6tachees 

ryi     Showthrough  /  Transparence 

I     I      Quality  of  print  varies  / 

' — '      Qualite  inegale  de  I'impression 


D 
D 


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includes  supplementary  material  / 
Comprend  du  materiel  supplementaire 

Pages  wholly  or  partially  obscured  by  errata 
slips,  tissues,  etc.,  have  been  refilmed  to 
ensure  the  best  possible  image  /  Les  pages 
totalement  ou  partiellement  obscurcies  par  un 
feuillet  d'en-ata,  une  pelure,  etc.,  ont  6t6  film^es 
a  nouveau  de  fa^on  k  obtenir  la  meilleure 
image  possible. 

Opposing  pages  with  varying  colouration  or 
discolourations  are  filmed  twice  to  ensure  the 
best  possible  image  /  Les  pages  s'opposant 
ayant  des  colorations  variables  ou  des  decol- 
orations sont  film^es  deux  fois  afin  d'obtenir  la 
meilleur  image  possible. 


D 


Additional  comments  / 
Commentaires  suppl^mentaires: 


This  itttn  is  f  ilmad  at  tht  raduciion  ratio  chackad  balow/ 

C«  documant  ast  fiima  au  taux  da  raduction  indiqui  ci-dattous. 

10X  14X  18X 


d 


12X 


1«X 


Ul 

20X 


22X 


26  X 


30X 


24X 


28  X 


32X 


Th«  copy  filmed  hara  has  baan  raproducad  thanks 
to  tha  ganaroaity  of: 

National  Library  of  Canada 


L'axamplaira  film*  fut  raproduit  grica  A  la 
g*n*rositi  da: 

Bibliotheque  nationale  du  Canada 


Tha  imagaa  appaaring  hara  ara  tha  bast  quality 
possibia  consldaring  tha  condition  and  lagibility 
of  tha  original  copy  and  in  kaap'ng  with  tha 
filming  contract  apacif icationa. 


Original  eopias  in  printad  papar  eovars  ara  fllmad 
beginning  with  tha  front  covar  and  anding  on 
tha  last  paga  with  a  printad  or  illustratad  impraa- 
sion,  or  tha  back  covar  whan  appropriata.  All 
othar  original  eopias  ara  filmad  beginning  on  tha 
first  paga  with  a  printad  or  illustratad  impraa- 
sion,  and  anding  on  tha  last  paga  with  a  printad 
or  illustratad  impression. 


The  last  recorded  frame  on  each  microfiche 
shell  contain  tha  symbol  -^  (meaning  "CON- 
TINUED"), or  the  symbol  V  (meening  "END"), 
whichever  epplies. 


Les  imeges  suivantas  ont  M  reproduites  svec  Is 
plus  grsnd  soin.  compte  tenu  de  la  condition  st 
de  le  nettet*  de  rexampiaire  film*,  at  sn 
conformity  avec  les  conditions  du  contrst  de 
filmage. 

Les  exemplaires  origineux  dont  la  couvarture  an 
papier  eat  ImprimAa  sont  filmte  en  commenpant 
par  la  premier  plat  at  en  terminent  soit  par  la 
darniAre  paga  qui  compona  una  empreinte 
d'impression  ou  d'illustration,  soit  par  le  second 
plat,  salon  le  cas.  Tous  les  autres  exemplaires 
origineux  sont  filmte  en  commenpsnt  par  la 
premiere  paga  qui  comporte  une  empreinte 
d'impreasion  ou  d'illustration  at  an  terminant  par 
la  derniire  paga  qui  comporte  une  telle 
empreinte. 

Un  dea  symbolaa  suivants  spparaitra  sur  la 
derniire  imege  de  cheque  microfiche,  selon  le 
cas:  le  symbols  — ^  signifis  "A  SUIVRE",  le 
symbols  ▼  signifie  "FIN". 


Mapa.  piataa.  charts,  etc.,  may  be  filmed  at 
different  reduction  ratios.  Those  too  large  to  be 
entirely  included  in  one  exposure  ara  filmed 
beginning  in  the  upper  left  hend  corner,  left  to 
right  and  top  to  bottom,  as  many  frames  as 
required.  The  following  diagrams  illustrate  the 
method: 


Les  cartas,  planches,  tableaux,  etc.,  peuvent  itre 
filmis  i  des  taux  de  reduction  diff*rents. 
Lorsque  le  document  est  trop  grand  pour  *tre 
reproduit  en  un  seul  cliche,  il  est  film*  A  partir 
de  Tangle  supArieur  gauche,  de  gauche  A  droite, 
et  de  haut  en  bas.  an  prenant  la  nombre 
d'imegea  nicessaire.  Las  diagrammes  suivsnts 
illustrent  le  mOthode. 


1 

2 

3 

1 

2 

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4 

5 

6 

MICROCOPY   «BOlUTION   TBT  CHAtT 

(ANSI  and  ISO  TEST  CHART  No.  2) 


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Modern  Business 

A   SERIES   OF    TEXTS    PREPARED    AS 

PART  OP  THE  MODERN  BUSINESS 

COURSE  AND  SERVICE  OF  THE 

ALEXANDER  HAMILTON 

INSTITUTE 


ALEXANDER  HAMILTON  INSTITOTE 
NEW  YORK 


Modern  Business 

iDiTw-ur*cBur 

JOSEPH  FRENCH  JOHNSON 

Dean,  New  York  Univewlty  School  of 
Cominerce,  Accounts  and  Finance 

MAXAOIXO  EOnOk 

ROLAXD  p.  FALKirtt 

'AMOaAR  XDITOBS 

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3.  UaOAKUATIOX    AKD   CoKimOl  r^U      i        ,„ 

A   !>.  m,  ....    Charles  W.  Gerstenber* 

,   „  Dexter  S.  Kimball 

5.  Ma.„t,xo  AKo  M«CHAK«„.a   .     .     .    The  Editors 

7  ^"™""  '^""'"* "^rl-rt  F.  de  Bower 

7.  Sax^aksh,,  ako  Sa„.  Makao.m.x,  .  John  G.  Jones 

8.  CMMBvt  AXD  ,H.  C.EDI,  Max   ....  The  Editors 

9.  AccouxtiKo  Peixcipu.  .     .     ,  «,.     „  ,,^ 
in  r>       »                                          ....  iiie  Editors 

10.  Cost  Fixdixo    ...  ^ 

,,   ^ ,  „  Dexter  S.  Khnball 

11.  COBK»ATIOX    FiXAXCI        .       .       .  will!  U     «, 

la   -a  ^  WlUlam  H.  Walker 

12.  BunxEss  CowusspoxiiBxci  u      .  »»«iKer 
„»«.,-              ^  "^««xci Harrison  McJohnston 

13.  Advmtisixo  Campaioxs  ...  «-..  vio^. 
,.    ,             „                              JMac  Martin 

14.  IXLAXD  TiAmc     .      .  c.  , 

i«   !?«-_       »«_  oimon  J.  McLean 

16   B  ^  '^  '"""''*  ....  J.  Anton  de  h1 

.  BAXK.XO  P.xxcP„.  ...  p^enc     .     .  E.  L.  Stewart  P^erson 

17.  Domestic  Axn  Foaiiox  Exchaxoe  f   t    «♦       ^  ""e'wn 

18.  IX8U.AXCK   ....  •  ^"       ®**''"'*  Patterson 

ip.omc  maxaoehexx*  : : : ; . ;  '^i^^z 

20.  Th,  Exchaxoe.  ..„SPEC.a.„ox     .     .    Albert  W.  Atwood 
2.  Acc«„x,.xo  Peac^c,  Axn  Ac„™,o     .    John  T.  Madden 

"  rrr;r '^^""  ^— -  •  ^^^-^--^^^ 

OM   n^  ,        Edward  D.  Jones 

24.  CoMMxaciAi,  Law  ....  w  ,»      o    ,  . 

••    waiter  S.  Johnson 


BANKING  PRINCIPLES 
AND  PRACTICE 


BT 


E.  L.  STEWART  PATTERSON 

atiptriHUndmi  </  E<ut0m  Towmsklp  AvmAm 
OmadUm  Bamk  «/  Oommtn$ 


MODERN  BUSINESS 
VOLUME  U 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


oorTMOHT,  1911, 12,  13, 18, 17,  bt 
ALEXANDET  HAMILTON  INSTITUTE 

OOPTBIOBT  I*  OUAT  BBITAOf ,  1914,  17,  BT 

ALEXANDER  HAMILTON  INSTITUTE 

Th*  t  U«  Md  eoatrau  of  tUa  Tolttm*, 

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tioaUitoSeaadiMviaa.  ^^ 

MadolaO.    .A. 


f-1 


PREFACE 

It  would  be  impossible  within  the  narrow  confines 
of  one  volume  to  deal  exhaustively  with  so  extensive 
a  subject  as  that  of  Canadian  banking  practice,  but 
It  IS  hoped  that  the  parts  of  this  subject  dealt  with 
herem  will  be  found  to  be  treated  with  due  regard  to 
their  relative  importance,  and  that  no  really  essential 
information  has  been  overlooked.    As  far  as  possible, 
all  matters  coming  within  the  scope  of  the  Bills  of 
Excnange  Act  have  been  purposely  omitted,  because 
an  mtimate  knowledge  of  the  act  tself  is  essential  to 
every  busmess  man  and  banker. 

Altho  Canadian  banks  may  differ  in  bookkeep- 
mg  and  methods,  the  general  principles  and  aims  of 
their^stems  are  the  same,  and  the  reader  should  have 
no  difficidty  in  understanding  the  forms  and  methods 
explamed  m  the  Text,  and  in  interpreting  them  by  his 
own  experience.  T.io  specific  explanations  have  been 
avoided  as  far  as  possible,  lest  the  principles  involved 
s»iould  be  buned  under  a  mass  of  detail. 

The  present  edition  of  the  Text  has  been  revised 
tho  without  any  attempt  to  cover  the  post-war 
conditions  which  at  the  time  of  writing  are  stUl  in 
process  of  readjustment.  Many  of  the  illustrations 
have  been  drawn  from  the  experience  of  the  years  just 
precedmg  the  war  as  they  reflect  the  normal  life  of 


H 


PREFACE 


Canadian  banking.  Statements  regarding  the  years 
of  war  have  been  omitted  as  they  are  too  indicative  of 
abnormal  conditions  to  be  of  more  than  passing  in- 
terest in  a  study  of  the  principles  of  banking. 

J.  L.  Stewabt  Patteeson. 
Sherbrooke,  Que. 


TABLE  OF  CONTENTS 

PART  I— BANKING  PM:  CIPLES 

CHAPTER  1 

^^^^  HISTORICAL  SKETCH 

1.  Introduction "" 

*.  New  France 

8.  British  Occupancy  (1768-1817) 

4.  Army  Bills .'      *      '      *      '  f 

«.  Provincial  Banking  (1817-1867)  .      .      *     *      *  a 

6.  National  Banking  System  .                             '  « 

7.  First  Bank  Act  1871     ....     .'     .*     .'     *  o 

'HAPTER  II 
KINDS  OF  BANKS 

1.    Commercial  Banks 

«.     Savings  Banks    .•.....'**     Jf 
8.     Trust  and  Loan  Companies      .      .      '      *     *      *     j^ 

CHAPTER  III 

THE  BANK  ACT 

1.     The  Bank  Act  of  1918  ....  ,,, 

«.     Changes  in  the  Bank  Act  . JI 

8.     SharehoWsrs'  Audit  f^ 

4.  Abstract  of  the  Bank  Act  .      .****'  H 

5.  Title  and  Interpretations  (Sections  1-2)  .      .      .  n 

Til 


vm 


BANKING  PRINCIPLES 


•lonoir 

6. 

7. 

8. 

9. 
10. 
11. 
IS. 
18. 


14. 

15. 
16. 

17. 
18. 
19. 

«0. 
«1. 
S2. 

Sd. 

£4. 

Its. 

26. 
«7. 

28. 
29. 
SO. 
81. 


PAOI 

21 
22 
22 
23 
24 
24 
25 


5ec- 


25 
26 

26 
27 
28 


Application  of  the  Bank  Act  (Sections  3-7) 
Incorporation  of  Banks  (Sections  8-12) 
Organization  of  Banks  (Sections  13-17) 

Refusal  of  Certificate 

By-Laws  (Section  18)   ....      . 
Board  of  Directors  (Sections  19-28) 
Greneral  Powers  of  Directors  (Sections  29-30) 
Regulations  as  to  Shares  and  Shareholders  (S 

tions  31-32) .     25 

Increase  or  Decrease  of  Capital  Stock  (Sections 

,,     ^^^) 

Shares  and  Calls  (Sections  36-42) 

Transfer  and  Transmission  of  Shares   (Sections 

,       **-«3) \      . 

Annual  and  Special  Statements  (Sections  54-55) . 
Shareholders*  Audit  (Section  56,  all  new)  . 
Special  Report  to  the  Minister  of  Finance  (Sec- 
tion 56a,  new) gg 

Dividends  (Sections  57-59)      ......     go 

Cash  Reserve  (Section  60)  ....      .  go 

General  Note  Issue  and  Circulation  of  Notes  (Sec- 
tion 61) .     30 

Additional  Issue  for  Moving  Crops  (Section  61, 
Sub-sec.  15-20) 

Central  Gold  Reserve  Issue  (Section  61,  Sub-sec. 
^13) 

Note  Issue  in  British  Coloni:'«»  (Section  62) 

Pledge  of  Notes  Prohibited  (Section  63)  . 

Bank    Circulation    Redemption    Fund    (Sections 

64-69) 

Redemption  at  Par  (Sections  70-71)  . 
Payments  in  Dominion  Notes  (Section  72) 
Signing  of  Bills,  etc.  (Sactions  73-74) 
Counterfeit  Notes  (Section  75)      .      .      .      j      [ 


31 

31 
32 
32 


32 
34 
34 
85 
85 


CONTENTS  ij 
CHAPTER  IV 

•iCTioK                     ''^^  ^^^^  ACT  (Continued) 
1.     Business  and  Powers  of  a  Bank  (Sections  76-88)  'sS 
«.     Warehouse  Receipts  as  CoUateral  Security  (Sec- 
tions 84-90) ^  g- 

3.  Rates  of  Interest  and  Exchange  (  Sections'  91-94)  39 

4.  Deposits  (Sections  95-98) go 

5.  Purchase  of  the  Assets  of  a  Bank  (Sections'9^ 

•'•/ 40 

6.  Returns  to  Government  (Sections  112-114)  41 

7.  Payments  to  the  Minister  of  Finance  upon  Dissol 

lution  of  a  Bank  (Sections  116-116)       .  44 

8.  Canadian  Bankers*  Association  (Sections  117-124  44 

9.  Insolvency  (Section  125) ^g 

10.  Suspension  (Sections  126-131)      •      .      !  45 

11.  Penalties  (Sections  131a-168) 45 

]i    :^";^"<Jj"^"t«  to  Bank  Act  During  1913-1916     .'  46 

10.     Bills  of  Exchange  Act 4» 


1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 
10. 
11. 
12. 


CHAPTER  V 

NOTE  ISSUES  AND  THE  BRANCH  SYSTEM 

Monetary  System -j. 

Dominion  Notes       ... 

Bank  Note  Issue  ■      -      .      .      .  '     SS 

Security  to  Note  Holder ». 

Elasticity ^      !      !      !      1  66 

Seasonal  Fluctuations    •.....*  57 

Annual  Changes       •      •      •      .      .  Kg 

Monthly  Changes      ••....!  ga 

Emergency  Currency      -      -      ...  ax 

Central  Gold  Reserves    ......  qk 

Lost  and  Destroyed  Notes  .      .  ffT 
Branch  System         .......,'     ^ 


X  BANKING  PRINCIPLES 

nOTION 

18.    Branch  System  and  Circulation 70 

14.    Branch  System  and  the  Borrower 7f 

16.     Establishing  a  Line  of  Credit .75 

16.  Branches  and  Panics .78 

17.  General  Review .*     !      !     81 

18.  Canadian  Banking  System  Under  War  Conditions    88 


i! 


1. 
ft. 

s. 

4. 

5. 

6. 

7. 

8. 

9. 
10. 
11. 
12. 
IS. 
14. 
15. 
16. 
17. 
18. 
19. 
SO. 
«1. 
22. 
SS. 
84. 


CHAPTER  VI 
ANALYSIS  OP  A  BANK  STATEMENT 

Bank  Statements go 

Deposits  Payable  After  Notice  ....'.'.     9S 

Demand  Deposits !     94 

Deposits  Elsewhere 96 

Due  Banks  in  Canada 96 

Due  to  Banks  in  Foreign  Countries      .      .      .      !     96 
Dominion  and  Provincial  Governments       ...     96 

Circulation *      *     98 

Capital  and  Reserve .99 

Specie  and  Dominion  Notes 99 

Notes  and  Checks  of  Other  Banks  .      .      !      .      .   100 

Deposits  with  Other  Banks !      .   101 

Securities *      '   jqj 

Call  Loans  in  Canada *  jqj 

Call  Loans  Elsewhere [  108 

Reserves '      *   -.qq 

Current  Loans 110 

Overdue  Debts *      *      *      *  ng 

Real  Estate .*      .*      .         114 

Bank  Premises II- 

Profit  and  Loss  Statement  of  a  Bank  ...'."  114 

Interest  on  Deposits jlg 

Profits  of  the  "Percentage  Bank"  .      .      .      ,      .   iftO 
Bank  Premises Ijj 


CONTENTS 


nonov 

95.    Reserve  Fund 

26.    Gross  Profits 


PAOI 

121 

lift 


PART  II— BANKING  PRACTICE 
CHAPTER  I 

HEAD  OFFICE 

1.     Directors 

«.    General  Manager     ... -.ZL 

S.     Superintendent  of  Branched      .' JS 

4.  Chief  Inspector .'      *      *      '         i  «2 

5.  Secretary      .       .  

6.  Chief  Accountant     .* }?? 

188 

CHAPTER  II 

HEAD  OFFICE  RECORDS 

1.  Head  Office  Bookkeepine     . 

«.  The  General  Ledger J^? 

«.  Correspondents'  Ledgers ,ff 

4.  Statistical  Books      .      .  ^^^ 

5.  Branch  Clearings ^^'^ 

6.  Stock  Books,  etc.      .      .* ^^'^ 

7.  Circulation  Records 3?? 

8.  Returns  to  Head  Office  .      * JfJ 

9.  Branch  Clearings  Statement  (Daily)  *      *      '      *  J" 

10.  Financial  Statement       .      .  ^        ^^  •      •      •      •   141 

11.  Discount  Report      ...  

1«.  Cash  Item  Account ^*^ 

18.  Balance  Sheet     . "^** 

14.  Overdue  BOls  ^** 

15.  Monthly  Liability  R'etuni    .'      .* l^ 

10.  Sundry  Returns  *** 

148 


am  BANKING  PRINCIPLES 

nonox  ^j^ 

17.  Weekly  Report  on  Business 143 

18.  Records  of  Routine  Work 145 

CHAPTER  III 

THE  BRANCH  STAFF 

1.     Manager 24^ 

«.     Daily  Work !      !  148 

8.     Accountant          I49 

4.    Teller .*      !      .*  160 

8.     Ledger-Keeper 151 

6.  Collection  Clerk 15jj 

7.  Discount  Clerk 158 

8.  The  Junior 158 


Mi 


1. 
ft. 
s. 
4. 
5. 

6. 

7. 

8. 

9. 
10. 
11. 
18. 
18. 
14. 
15. 
16. 
17. 


CHAPTER  IV 

BRANCH  BOOKS  AND  RECORDS 

Bank  Accounting I55 

Books  of  a  Branch 15g 

Loose-Leaf  Accounting 159 

Cash  Book Ign 

Writing  Up  the  Cash  Book *   igf 

Supplementary  Cash  Book 168 

Discount  Register [   154 

Discount  Blotter Igg 

Discount  Diary Igijr 

Trade  Bills  Remitted  Diary      ....!.    169 

Drafts  Register Igg 

Check  Lists ^      ^   yj^ 

Cash  Items I»jr8 

Remittance  Book 1175 

Branch  Clearing  Statement 177 

"At  Credit"  Advices !      .   179 

Head  Office  Entries 181 


CONTENTS 


aonoN 


Business  with  Other  Banks 

Teller's  Records 

General  Ledger   . 

Current  Deposit  Ledger 

Savings  Bank  Ledger 

Liability  Ledger 
Collection  Register  . 
Collateral  Register  . 
General  Statement  Books 
Balance  Book 
Overdraft  Reg'ter  . 
Discrepancies  Book 


••• 

ZIU 


rAcn 

189 

IbS 

784 

187 

189 

190 

19S 

194 

194 

196 

196 

196 


1. 
2. 
S. 
4. 
5. 

6. 

7. 

8. 

9. 
10. 
11. 
1«. 
18. 
14. 
15. 
16. 
17. 


CHAPTER  V 
DEPOSIT  BUSINESS 

New  Accounts 

Opening  Accounts     . }z^ 

Particulars  to  Be  Recorded  in  Ledger.'      .'      .'      '  199 
Partnership  Accounts    .  9M\ 

Conversion  of  Partnership  into  Joint  Stock  Coml 
Pany 

Joint  Accounts 

Accounts  with  Married  Women*      .*      *      '      '      *  Jni 

^^t^'^^-''^:'''''':''''"^''''^^^  •  •  ''08 

Deposit  Slips      . ^^'^ 

Money  Received  After  Hours    .'      .'  *      *      *  aSS 

Customers'  Pass-Books  .  '  '      '  Tnn 

Customers'  Certification  of  Account.   .*      .*      .'      *  Zl 
Guardmg  Against  Fraud    .      .  2^ 

Certification  of  Checks  .  Z71 

Cashing  Checks  ....'.* *^" 

Savings  Bank  Department  '...,['  jjg 


XIV 


BANKING  PRINCIPLES 


nonoN 


»Am 


18.  Duplicate  Pass-Books *1* 

19.  Machine  Statements «14i 


1. 

ft. 

8. 

4. 

5. 

6. 

7. 

8. 

9. 
10. 
11. 
12. 
13. 
14. 
15. 
16. 
17. 


CHAPTER  VI 
LENDING  A  BANK'S  MONET 

Experience  the  Only  Teacht. *18 

Causes  of  Failure  in  Business **0 

Statement  of  Affa'rs **8 

Science  of  Credit ^^'^ 

Form  of  Statement **8 

Cash ««9 

Merchandise *^* 

Bills  and  Accounts  Receivable *S6 

Machinery  and  Fixtures *36 

Current  Liabilities *^ 

Mortgages  and  Other  Factors 889 

Sundry  Information **® 

Preparing  the  Application »4* 

The  Application **3 

Guarantees **" 

Customers'  Wills ^^'^ 

Power  of  Attorney **9 


1. 
2. 
8. 
4. 
6. 
6. 
7. 


CHAPTER  VII 
CLASSIFICATION  OF  LOANS 

Call  Loans .  «54 

Loans  to  Joint  Stock  Companies 856 

Loans  to  Municipalities 86C 

Loans  to  Professional  Men 86S 

Loans  to  Farmers 86t. 

Loans  to  Retail  Merchants 26f 

Loans  to  Manufacturers  and  Merchants    .      .      .  26( 


CONTENTS 


XV 


•XCTIOH 


S18 
StftO 
ftStS 

ftrt 

fti8 

229 

«34 

236 

236 

238 

239 

240 

242 

243 

246 

247 

249 


8.  Collateral  Notes '^ 

9.  Accommodation  Paper ??? 

10.     Overdrafts     .  *"* 

274 

CHAPTER  VIII 

ADVANCES    >S  WAREHOUSE  RECEIPTS  AND  ASSIGNMENT 

1.  Sections  86  and  88  .      .  a-r/s 

2.  Section  88     .      .      .  *"^ 

3.  Promise  .....* *^® 

4.  Assignment    .....* ^ 

5.  Declaration         .  ^^ 

6.  The  Note      .      .      . *®^ 

7.  Making  Advanced     .      *      .'      ' f^g 

8.  Warehouse  Receipts  f«? 

9.  Substitution  *^^ 

10.  "Current  Season"    ]      [ ??J 

11.  Default    ....  ^^ 

12.  General  Remarks      .!..**'**      '  ^°* 

CHAPTER  IX 
INTERNAL  INSPECTTQN 
Branch  Inspection 
The  Audit     .      . 
Cash  and  Securities 
Ledgers,  etc. 

Sundries 

Inspection  Liability  Return 


1. 

2. 

3. 

4. 

6. 

6. 


306 
307 
308 
309 
310 
311 


CHAPTER  X 

BANK  COST  ACCOUNTING 

1.  Need  of  a  Cost  System  .... 

2.  Principles  of  Cost  Accounting  .      [ 


XVI-C8 


315 
317 


I    I 


xvi  BANKING  PRINCIPLES 

■aonoN 

8.     Small  Checking  Accounts dl9 

4.  Branch  Expenses S2S 

5.  Inland  Exchange SS5 

6.  Cost  Data SSI 

7.  An  Account  Analyzed SS3 

8.  Method  of  Analysis SS0 

9.  Exchange  Received  on  Items  Deposited  and  Col- 

lected       SS7 

10.  Checks  Paid  at  Par  at  Other  Branches     .      .      .  SS9 

11.  Creneral  Remarks S89 


lii> 


9A 

819 
SSS 
825 
881 
888 
885 


887 
889 
889 


PART  I 
BANKING  PRINCIPLES 


y 


in 


\ 


BANKING   PRINCIPLES 


CHAPTER  I 

HISTORICAL  SKETCH 

1.  Introduction.--ln  an  intelligent  study  of  the 
Canadian  banking  system  particular  stress  should  be 
laid  on  the  fact  that  the  system  has  been  evolved,  not 
made;  that  it  has  grown  up  with  the  country,  suffered 
with  It,  prospered  with  it  and,  since  the  Confedera- 
faon,  been  the  backbone  of  commerce  and  agriculture. 
The  careful  decennial  revisions  of  the  banking  laws 
have  kept  the  system  continually  in  touch  with  the  re- 
quirements of  Canada's  constantly  altering  conditions, 
in  tact,  m  no  other  country  does  the  history  of  bank- 
mg  support  so  forcibly  the  contention  of  Horace 
White  in  his  "Money  and  Banking"; 

me^'  Ti"v^^'';l!l"^'"«^.*'"  *^"  outgrowth  of  experi- 
dr^nlVTtVTnTerloT  ^'^  ''''  "3^«*^l-tio„  of  ideas 

divS:it::our  pS  '''  ''''''''  "^^  ''  ^^"«^ 

3 


4  BANKING  PRINCIPLES 

New  France 1608-1768 

British  Occupancy   1768-1817 

Provincial  Banking 1817-1867 

National  Banking  System 1867- 

2.  New  France. — During  this  period  (1608-1768) 
Canada  had  its  first,  and  it  is  to  be  hoped  its  last,  ex- 
perience in  "fiat"  money.  In  lieu  of  a  better  circu- 
lating medium,  beaver  and  other  furs,  wheat  and 
tobacco  were  accepted  m  trade,  and  tho  at  first  the 
issue  of  government  obligations  in  the  shape  of  "or- 
donnances"  and  card  mone"  were  a  welcome  relief, 
the  scandalous  abuse  of  this  privilege  quickly  brought 
it  into  disrepute,  for  no  matter  in  what  form,  or  under 
what  conditions  these  obligations  were  issued,  they 
all  traveled  the  same  road  to  ultimate  depreciation. 

The  country  found  itself  at  the  time  of  the  capitu- 
lation, in  1760,  loaded  with  a  tremendous  debt  of  over 
80,000,000  livres  outstanding,  of  which  some  84,- 
000,000  livres  were  in  ordonnances,  7,000,000  in  card 
money  and  treasury  bonds  and  the  balance  in  other 
forms  of  obligation.  This  formed  one  of  the  most 
difiicult  problems  that  confronted  the  British  govern- 
ment and,  notwithstanding  the  impoverished  condi- 
tion of  France,  the  British  insisted  upon  a  definite 
basis  of  settlement.  Accordingly,  a  convention  was 
signed  in  1766  under  which  bills  of  exchange  and 
kindred  obligations  were  to  be  redeemed  by  the 
French  govermnent  at  50  per  cent  of  their  face  value, 
and  ordonnances  and  other  forms  of  debt  at  25  per 


^- 


HISTORICAL  SKETCH  f 

cent.  Owing  to  circumstances  which  need  not  be 
entered  into  here,  the  unfortunate  holders  eventuaUy 
received  only  a  moiety  of  this  settlement. 

The  history  of  this  pr-'od  presents  an  instructive 
esson  on  the  evils  of  money  issued  on  credit  only,  even 
tho  the  credit  is  that  of  a  government.  There  is 
I  no  doubt  that  Alexander  Hamilton  had  the  sad  ex- 
perience of  New  France  before  him  when  he  made  his 
severe  stricture  on  government  issues  based  on  credit. 
In  his  report  on  banking  in  1790,  he  said: 

I        The  emitting  of  paper  money  by  the  authority  of  the 
I    g^^ent  ui  wisely  prohibited  to  the  individud  ^a?«i  ^ 

1    SU?e.      Tho   .       '*"'^''*.  ^^  ^^'  government  of  the  United 

I      -^^  V         °  P*P*'  emissions   under   a   ireneral   authorifv 

might^have  some  advantages  not  applicableTnd  be  ^ree  f r"*^ 

rtho'st^r'*^^  r'""^  are  applic^able  to  the  like  em  ssZ^ 

♦K-f  Iif       ^™*^  ^"'^^  ^^  *^""^  8o  <="t*'n  of  being  abused 
hat^  the  wisdom  of  the  government  will  be  shown^n^ 

!  iT^e'^fnt'''  "*'  *'^ ""  °' »°  ^^"""^  -d  dang^;^:::^ 

a.  British  occupancy  (1763-1817).— The  British 

govermnent  found  the  country  practically  without 

I  any  currency,  and  immediately  took  steps  to  place 

the  fiaances  of  the  colony  on  a  stable  foundation  by 

es  abhshing  an  equitable  and  permanent  standard  of 

value  for  the  various  coins  which  now  became  current 

n  Canada.    The  government  imported  and  paid  out 

large  quantities  of  Spanish  milled  dollars  at  4s.  6d. 

per  dollar  or  $4.44%  per  pound  sterling,  the  old  par 


'.^ 


6  BANKING  PRINCIPLES 

of  exchange.    These  were  used  for  the  pajrment  of 
the  army  and  the  purchase  of  public  supplies. 

In  1791  representative  government  was  established 
and  during  the  next  few  years  several  unsuccessful 
attempts  were  made  to  obtain  charters  for  banks  of 
issue. 

4.  Army  bills.— In  1812,  during  the  war  with  the 
United  States,  the  British  government,  finding  itself 
hampered  by  a  serious  lack  of  currency,  met  the  dif- 
ficulty by  the  passage  of  the  Army  Bill  Act.  Under 
this  act  the  Army  Bill  office  was  established  and  em- 
powered to  issue  bills  of  various  denominations. 
These  bills  were  readily  absorbed  by  the  people,  who 
were  quick  to  realize  the  advantage  of  a  system  of 
financing  so  carefully  thought  out  with  a  view  to 
prompt  and  satisfactory  redemption,  and  with  that 
quality  of  elasticity  which  later  became  such  a  prom- 
inent feature  in  the  bank  note  circulation  of  Canada. 

5.  Provincial  banking  (1817-1867). — The  contrac- 
tion of  the  Army  Bills  circulation  naturally  caused 
great  inconveniences  to  the  public;  the  principal  busi- 
ness centers,  Montreal  and  Quebec,  being  the  greatest 
sufferers.  The  bills  filled  a  long-felt  want  and  in 
May,  1817,  to  supply  their  place,  the  Montreal  Bank, 
now  known  as  the  Bank  of  Montreal,  was  founded, 
followed  by  the  establishment  of  other  banks  under 
charter  from  the  various  provinces.  Between  1817 
and  1825  two  banks  were  established  in  Lower  Can- 
ada (Quebec),  and  one  each  in  Upper  Canada  (On- 
tario), New  Brunswick  and  Nova   Scjtia.     There 


HISTORICAL  SKETCH  7 

was  no  attempt  at  uniformity  in  the  conditions  of  the 
various  charters,  but  little  attention  having  been  paid 
m  those  days  to  the  theory  of  banking.  As  a  rule, 
the  charters  were  based  upon  the  articles  of  agree- 
ment as  drawn  up  by  the  incorporators  and,  as  might 
be  expected  under  such  circumstances,  many  of  the 
clauses  were  dictated  by  selfishness  or  originated  in  a 
total  misconception  of  the  functions  of  a  bank 

This  unsatisfactory  situation  was  further  compli- 
cated by  mJependent  ventures  into  the  field  of  bank- 
ing le^slation  by  the  Parliament  itself,  such  as  the 
Free  Banking  Act"  and  the  "Provincial  Note  Act." 
Fortunately,  the  British  government  was  fully  awake 
to  the  dangers  of  promiscuous  banking,  and  even  at 
the  risk  of  havmg  interference  in  these  matters  mis- 
construed, persisted  in  demanding  that  all  legisla- 
tion beanng  on  note  issues,  banking  and  the  like, 
^ould  receive  the  royal  assent  before  going  into  effect. 
The  young  colony  at  first  resented  this  restriction, 
but  soon  learned  to  appreciate  the  guidance  of  riper 
and  more  experienced  judgment,  and  undoubtedly 
this  wise  action  on  the  part  of  the  Colonial  Ofiice 
saved  Canada  from  being  the  exploiting  ground  of 
many  unsound  and  dangerous  banking  theories.    As 
iLT;  "l*"y7^^^«"*"des  were  experienced,  and  in 
1837,  during  the  rebeUion,  a  temporary  suspension  of 
specie  payments  occurred  under  permission  of  an 
order  m  councU.     The  necessity  for  this,  however,  can 
hardly  be  considered  a  reflection  on  the  banks,  as 
it  was  due  principally  to  similar  tho  more  serious 


^ 


8 


BANKING  PRINCIPLES 


conditions  which  obtained  at  that  time  in  the  United 
States,  Canada  then  as  now  being  intimately  con- 
cerned in  the  financial  welfare  of  its  neighbor  to  the 
south. 

Considering  the  physical  and  other  disabilities 
under  which  these  early  banks  labored,  their  record  is 
surprisingly  creditable,  and  much  of  their  experience 
and  foresightedness  is  embodied  in  the  \  esent  Bank 
Act.  In  fact,  from  1829  to  1866,  not  one  bank  failed. 
True,  trying  times  and  heav  losses  were  met  time 
and  again,  but  with  the  exception  of  the  authorized 
suspension  in  1837,  which  was  very  reluctantly  taken 
advantage  of,  the  banks  not  only  remained  solvent, 
but  maintained  the  redemption  of  then*  obligations  in 
specie. 

6.  National  hanking  system. — In  July,  1867,  the 
British  North  America  Act  was  passed  by  the  Im- 
perial Parliament,  under  which  the  provinces  of  Can- 
ada were  confederated  into  the  Dominion  of  Canada. 
The  f ramers  of  the  Act,  with  creditable  foresight,  real- 
ized that  the  banks,  like  the  railroads,  in  order  to  dis- 
charge most  effectively  their  natural  functions,  must 
be  national  rather  than  provir  jial  in  character,  and 
to  this  end  vested  in  the  parliament  of  the  new  Do- 
minion the  exclusive  authority  to  legislate  on  all 
matters  pertaining  to  banks  and  banking,  currency 
and  coinage,  negotiable  instruments  and  kindred 
matters.  With  the  passing  of  the  Act  the  existing 
banks  came  automatically  under  the  new  jurisdiction. 
Tentative  legislation  between  1867  and  1870  extended 


HISTORICAL  SKETCH  9 

the  powers  of  the  banks  previously  incorporated  by 
the  pro^ces  to  the  whole  Dominion  and  unified  the 
laws  as  far  as  practicable. 

7.  First  bank  act  1871, -The  first  general  bank  act 
ot  the  Dominion  was  passed  in  1871.    By  this  act  the 
duration  of  a  bank's  charter  was  practicaUy  limited  to 
ten  years,  and  as  the  charters  of  the  banks  expired  thev 
were  renewed  until  the  foUowing  revision  of  the  act. 
The  renewals  of  the  charters  were  thus  made  concur- 
rent  with  decennial  revisions  of  the  act  in  1880,  1890 
1900,  and  so  on.     Various  amendments  were  made 
during  the  first  few  years,  but  since  then,  except  at 
the  regular  revisions,  changes  have  been  infrequent, 
and  have  been  made  only  to  meet  some  contingency 
due  to  the  rapid  expansion  of  Canada,  or  to  correct 
some  omission  or  ambiguity  overlooked  in  the  previous 
revision. 

The  last  revision  should  have  been  made  in  1910 
but  owmg  to  causes  which  it  is  not  necessary  to  detail 

T^'i  ,  ^  "  ""^  ^^''  ^^'^^  ^^^^  extended  to  1913. 
Ihe  delay,  however,  was  accompanied  by  little  or  no 
inconvenience  to  those  concerned;  the  charters  of  the 
various  banks  were  extended  until  the  new  act  was 
finaUy  passed.  Changes  that  were  imminently  neces- 
sary were  looked  after  by  special  amendments  to  the 
act  of  1900. 

In  many  ways  the  delay  was  not  without  its  advan- 
tages. The  tremendous  expansion  in  the  financial 
and  commercial  life  of  Canada  demanded  that  the  re- 
vision should  be  most  carefully  and  presciently  con- 


10 


BANKING  PRINCIPLES 


r  i-'i 


'!     ID 


,u    Ir.; 


sidered.  During  1918,  the  banking  system  of  Can- 
ada was  freely  discussed,  both  in  the  public  press  and 
in  special  committees  appointed  for  the  purpose. 

It  is  notable  that  the  revisions  are  made  neither  by 
theorists  nor  tainted  with  political  expediency.  The 
ablest  men  in  the  country,  regardless  of  their  politics, 
are  consulted  and  give  evidence  before  the  parlia- 
mentary committee.  Lawyers,  merchants,  farmers, 
bankers  and  others  equally  well  qualified  contribute 
their  criticism  and  advice  towards  the  advancement  of 
the  best  interests  of  the  country.  The  measures  are 
then  fully  debated,  and  when  finally  passed,  are  ac- 
ceptable to  all  interested. 

This  brief  account  of  banking  in  Canada  is  given, 
not  as  a  history,  which  would  be  without  the  scope  of 
this  volume,  but  in  order  to  assist  the  reader  in  realiz- 
ing that  the  growth  of  the  banking  system  of  Canada 
has  been  one  of  evolution  rather  than  of  expediency  or 
hasty  legislation,  and  that  the  machinery  provided  for 
the  systematic  and  regular  revision  of  the  Bank  Act 
is  invaluable  in  meeting  the  tremendous  expansion  and 
constantly  changing  requirements  of  Canadian  com- 
merce and  aoriculture.  This  chapter,  read  in  con»- 
junction  with  the  chapter  on  the  Bank  Act,  and  the 
explanation  of  the  branch  system  and  note  circulation^ 
should  demonstrate  clearly  how  far  the  functions  per- 
formed by  the  banks  in  Canada  respond  to  the  require- 
ments of  a  new  country,  as  defined  so  lucidly  by  Sir 
Edmund  Walker: 


HISTORICAI,  SKETCH  u 

What  is  necessary  in  a  banking  system  in  order  that  it 

:r/;rrsa^\„7;=^^  » -^^^y  --^^^^ 

to^  d:Sr.^"'  *'^  ^"*^«*  P«"*^^  -—  o^  -fety 
«.  It  should  supply  the  legitimate  wants  of  the  borrower 
not  merely  under  ordinary  circumstances,  but  fn  tTm^  of 
financial  stress,  at  least  without  that  curtalment  whicrLds 
to  abnormal  rates  of  interest  and  to  failures. 

money  overthewTr'  '^"  T*l!^"'''^  "^^^^^^^  *°  '^"t^bute 
money  over  the  whole  area  of  the  country,  so  that  the  small- 

\^TlSr'''^'''  '"  '""^  '**^  "^  -*--*  will  reJ^lt      " 
readill  conv^rf  ?r- '  *  '""'"'^^  ^'"^  ^'°'"  ^°"bt  ^«  to  value, 
rSers'oftar^^"^'  *"'  *"«^^""«  ^  -^"-  *<>  the 

thp^n?  '*''*"^'^  *^  ?'  ^^"'P^'t^  *  '^^«^^ion  a«  possible  between 
«ie  currency  requirements  of  trade  and  the  cause  which 
tssues  paper  money,  and,  as  it  is  quite  as  necessarv  thlt  no 
IZZT  '^r^^  ^'  P°^"^^^'  -^^  tSat  the  sSro^currene^ 
tw^!  f^  *^'^"''*''  *^^'^  ^^^"J'J  be  a  similar  relation  bi^ 
Lr  .^.^yrS^^^^^^^^^        -<^  *He  cause  which^^t 

REVIEW 
jn.t  «  the  d„r.ton  of  .  bank',  charter?    Why  fa  thi,  deair- 


CHAPTER  II 


m 


KINDS  OF  BANKS 

1.  Commercial  banks. — In  the  Bank  Act  of  Can- 
ada, no  attempt  is  made  to  define  the  functions  of  a 
bank  in  general  terms;  the  Act  merely  states  that  "a 
bank  means  any  bank  to  which  this  act  applies."  A 
bank  in  Canada  therefore  means  one  of  the  chartered 
banks,  as  the  law  prohibits  the  use  of  the  word  "bank" 
by  any  other  institution. 

Economists  have  defined  the  functions  of  a  bank  in 
many  different  ways,  but  all  arrive  at  the  same  gen- 
eral conclusions. 

Horace  White,  in  his  "Money  and  Banking,"  thus 
defines  a  bank : 

An  institution  where  deposits  of  money  are  received  and 
paid,  where  credit  is  manufactured  and  extended  to  bor- 
rowers, and  where  the  exchange  of  property  is  facilitated. 
Having  first  acquired  the  confidence  of  the  community,  the 
bank  extends  its  credit  by  purchasing  interest-bearing  se- 
curities, mainly  business  men's  notes,  payable  at  a  fixed  time 
and  giving  the  sellers  the  right  to  draw  checks  upon  itself 
payable  at  sight.  The  amounts  thus  authorized  to  be  drawn 
are  termed  deposits,  the  bank  being  liable  for  them  in  the 
same  way  as  for  actual  money  deposited.  .  .  .  Bank  notes 
are  the  bank's  promises  to  pay  money  to  the  bearer  on  de- 
mand. 

It 


KINDS  OF  BANKS  jg 

All  there  functions  are  discharged  by  the  Canadian 
banks,  but  their  economic  value  is  greatly  enhanced 

^^:  »y'^.f  .J«»«*«.  -hieh  enables  the  GTt^ 
pither  and  distribute  money  over  the  whole  area  of 
tte  country  thus  utilizing,  as  far  as  possible,  the  sup- 
ply  of  lojmable  capital  to  meet  the  demand.  In  other 
words,  thru  the  branch  system,  money  is  const^'y 
working  to  find  its  own  level.  The  Canadian  b^ 
are,  therefore,  essentiaUy  of  a  national  rather  than  of 
a  local  character. 

2  Saving*  bank,.-Tbe  main  fmiction  of  a  savings 
bank  u.  to  encourage  thrift  in  a  community  by  accep? 

ZtZ  5^'^  "^  "  "°»"  ""°""t»  ""d  allowing 
mtcrest  thereon  Upon  deposits  of  this  class,  m 
matter  how  amtU  the  amomit,  the  chartered  banks  of 
Canada  pay  mterest  and  they  operate  as  part  of  e«A 
h«mch  what  B  called  a  Savings  Bank  Department. 
Consequently  the  need  of  special  institution  for  this 
purpose  has  hardly  been  felt  in  Canada 

n,!^^'«*  *^,  8°™'"™™*  savings  bank  there  are 

nl^      f^  "'^^  **"  '^'^^  ^^'  »  the  comitry. 
n^ely:  the  City  and  District  Savings  Bank,  M^: 

toeal,  and  La  Caissed'Economie,  Quebec.    These  are 
well-known  institotions  and  are  highly  successful  in 

o'^'^^Zri*^"  ''^'"»''  -<"«  ^  ^-^^^^ 

ne  Dominion  government  supports  two  savings 

^^J^  ^™*''  ^'""8'  Bank,  which  is  o^ 
«.fed  by  the  Post  Office  Department  and  accepts  de- 
posiU  at  every  post  office,  and  the  other  caUed  the 


w 


14 


BANKING  PRINCIPLES 


ji  t 


Gk>vernment  Savings  Bank,  which  is  under  the  control 
of  the  Finance  Department.  The  latter  receives  de- 
posits at  comparatively  few  points,  principally  in  the 
larger  towns  in  the  maritime  provinces,  and  its  busi- 
ness is  gradually  being  merged  with  that  of  the  Postal 
Savings  Bank.  The  money  received  from  these  sav- 
ings banks  is  regarded  by  the  government  as  a  loan, 
which  practically  replaces  money  that  could  be  bor- 
rowed outside  of  Canada.  The  rate  of  interest  in 
both  banks  is  3  per  cent.  Each  entry  costs  about  12 
cents  or  .62  per  cent  of  the  average  deposit,  making 
a  total  of  3.62  per  cent.^  It  is  easily  seen  that  if  an 
adequate  reserve  were  maintained  it  would  bring  the 
cost  of  these  deposits  to  over  4^  per  cent.  The  gov- 
ernment, however,  avoids  the  expense  and  responsi- 
bility of  maintaining  an  adequate  reserve  by  a  clause 
in  the  Bank  Act  which  makes  it  compulsory  for  the 
banks  to  honor  government  checks  without  charge 
wherever  presented,  and  all  withdrawals  from  the  sav- 
ings banks  are  in  this  form. 

Theoretically  these  savings  banks  are  intended  for 
the  benefit  of  the  poorer  and  more  ignorant  classes  of 
the  conununity.  It  is  not  intended  that  the  well-to- 
do  should  avail  themselves  of  the  privileges  they  offer, 
and  to  this  end  there  is  a  limit  placed  on  the  amount 
which  may  be  deposited. 

8.  Trust  an,  ^ '^an  companies. — Of  late  years  a  con- 
siderable number  of  these  companies  have  been  organ- 

1  Hearing  before  House  Committee  on  Post  Office  Savings  Bank  1909, 
page  70. 


■i 


KINDS  OF  BANKS  15 

ized  in  Canada  under  provincial  or  Dominion  char- 
ters, and  as  It  is  an  open  question  whether  their  con- 
trol IS  vested  in  the  Federal  or  in  the  provincial  au- 
thorities, some  companies,  to  make  sure  of  their 
position,  have  obtained  charters  from  both  sources 

infnT^fTu  ^T^  7!«P««^es  are  suppc^sed  to  enter 
mto  the  field  of  banking  only  in  so  far  as  it  is  neces- 
isary  to  transact  their  especial  business.     There  is  a 
tendency,  however,  recently  developed,  to  enter  into 
competition  with  the  banks  in  various  ways,  espe- 
cially  m  canvassing  for  demand  deposits.    This  is  a 
dangerous  practice  for  trust  companies  to  indulge  in, 
for  demand  deposits  require  special  provision  in  the 
shape  of  cash  reserve,  and  a  study  of  the  annual  state- 
ment  of  the  average  trust  or  loan  company  wiU  show 
how  httle  this  responsibility  is  realized  or  provided 
tor.    i.,ke  the  government,  each  company  evidently 
thinks  It  can  rely  on  the  banks  in  case  of  trouble,  over- 
bokmg  entirely  the  fact  that  at  such  times  the  banks 
themselves  are  making  every  effort  to  protect  their 
own  reserves,  and  would  hardly  be  willing  to  advance 
money  to  a  corporation  which  has  all  its  assets  locked 
up  m  real  estate  and  other  fixed  securities. 
One  of  the  basic  principles  of  credit  is  that  the  cur- 

IT7  l{^^  *''^*'  '^°"^^  '^^^  ^'^c^^d  the  currency  of 
the  liabilities,  and  any  departure  from  this  principle 
IS  bound  to  prove  disastrous  eventually.  The  assets 
of  trust  and  loan  companies  in  Canada  are  invariably 
based  entirely  on  real  estate  and  other  non-liquid  se- 
curities, and  their  deposits,  if  any,  should  be  composed 


! 


ic 


BANKING  PRINCIPLES 


of  the  long  time  funds  of  the  community — those  which 
are  i.  regularly  employed  in  the  quick  turnover  of 
commercial  life.  To  accept  demand  deposits,  and 
then  lend  c^n  real  estate  the  funds  thus  obtained,  is  to 
invite  disaster.  The  question  is  a  serious  one  for  the 
country,  and  likely  to  prove  more  serious  later  on, 
unless  steps  are  taken  to  bring  all  these  companies 
imder  government  control  with  uniform  charters.  To 
be  consistent,  the  same  sound  considerations  which 
led  the  framers  of  the  Bank  Act  to  prohibit  banks 
from  lending  on  real  estate  should  work  inversely, 
and  should  withhold  from  companies  lending  on  real 
estate  the  right  to  receive  demand  deposits.  As  am- 
ple funds  are  obtainable  both  in  Canada  and  Europe 
from  the  sale  of  debentures  and  bonds  secured  by  real 
estate,  a  company  well  managed  and  reputable  has 
no  need  to  plunge  into  the  dangerous  ebb  and  flow 
of  transient  money. 


REVIEW 

Frame  a  brief  yet  complete  definition  of  a  bank. 

What  feature  of  the  Canadian  banking  system  enables  the  banks 
to  perform  their  functions  so  efficiently? 

What  provisions  are  there  for  savings  deposits  in  Canada? 

What  valuable  service  do  trust  and  loan  companies  perform  for 
the  country? 


CHAPTER  III 

THE  BANK  ACT 

1.  The  Bank  Act  of  IQIS.—Tht  present  Bank 
Act.*  which  came  into  force  on  July  1,  1918,  consists 
of  one  hundred  and  sixty  sections  or  clauses.  Its 
leading  features  may  be  briefly  summarized  as  fol- 
lows: 

1.  Interpretation  and  application Sections       1-7 

9,.  Incorporation  of  new  banks «  g-lT 

3.  Purchase  of  the  assets  of  a  bank «'  99-111 

4.  Insolvency  and  winding  up,  etc «*         115-181 

5.  Offences  and  penalties ««       131a-160 

6.  Internal  regulations  as  regards  direc- 

tors,   shares,    annual    statements, 

audits,  etc «  18-^0 

7.  Returns  to  government «  112-114 

8.  Note  issues «  61-75 

9.  Business  and  powers  of  a  bank «  76-98 

It  wiU  be  noted  that  the  first  five  divisions  deal  with 
special  conditions,  such  as  the  establishment  of  new 
banks,  amalgamations,  etc.,  and  are  only  of  occasional 
apphcation.  The  last  four,  however,  deal  with  mat- 
ters of  everyday  banking  and  call  for  careful  study. 
The  last  division,  "Business  and  powers  of  a  bank/* 

bv'SiSn!'/''*'  1""^!""^  °'  ^^  °'  H-n^A^^ifi^  Act  may  be  obtained 
vy  renutttag  twenty  cents  for  each  copy  to  the  King's  Printer,  Ottawa, 

17 


vM 


/^ 


18 


BANKING  PRINCIPLES 


wherein  are  defined  the  business  relations  of  banks 
with  the  public,  is  therefore  of  particular  interest  to 
branch  officers.  The  other  three  headings  deal  with 
matters  more  or  less  pertaining  to,  or  under  the  direct 
control  of  the  head  office. 

2.  Changes  in  the  Bank  Act. — Two  very  important 
additions  were  made  in  the  present  act,  namely:  the 
sections  providing  for  a  shareholders'  audit,  and  the 
creation  of  central  gold  reserves  in  connection  with 
the  issue  of  extra  circulation  when  required.  Au- 
thority was  given  to  lend  money  to  farmers  on  the 
security  of  threshed  grain,  and  a  number  of  minor 
changes  were  made,  mostly  of  a  routine  or  explana- 
tory character,  such  as  the  opening  up  of  registry 
offices  in  the  different  provinces,  the  printing  of  Sec- 
tion 125  on  s*i.ik  books,  documents  and  the  like, 
and  the  establishment  of  several  new  headings  in  the 
monthly  and  annual  statements.  The  central  gold 
reserves  will  be  dealt  with  in  the  chapter  on  note 
issues. 

8.  Shareholders*  audit, — A  provision  for  the  exter- 
nal supervision  of  banks  is  an  entirely  new  feature  of 
the  Bank  Act.  No  objection  was  advanced  by  any 
one  as  to  the  desirability  or  usefulness  of  the  external 
audit  itself,  but  the  problem  was  how  to  effect  an 
audit  without  evoking  the  aid  of  too  cumbersome  or 
too  burdensome  a  mechanism  and  how  to  avoid  plac- 
ing too  great  a  burden  of  responsibility  on  those  as- 
suming the  work,  without  first  ascertaining  how  far 
the  physical  limitations  of  any  such  examination,  due 


THE  BANK  ACT  jg 

to  the  branch  system,  would  affect  the  value  of  its  con- 
I  elusions.  Three  forms  of  external  supervision  were 
j  given  consideration,  namely:  examination  by  the  Do- 
I  mimon  government,  by  the  Canadian  Bankers'  As- 
1   soeiation,  and  by  competent  accountants. 

The  idea  of  government  supervision  was  advocated 
by  those  who  were  admirers  of  the  system  of  natiom.1 
bank  examinations  obtaining  i„  the  United  States. 
It  IS  obvious,  however,  that  even  if  these  examinations 
were  effective  m  the  United  States  (which  is  very 
much  open  to  question),  the  plan  itself  would  not  be 
-^asible  m  Canada  on  account  of  the  branch  system. 
Fmthermore,  there  is  no  doubt  that  the  government 
mspection  of  a  bank  is  taken  by  the  public,  in  a  way, 
as  a  guarantee  of  solvency.    In  the  United  States 
such  a  belief  is  of  only  local  effect  whereas  in  Canada 
It  woiJd  be  national  in  its  influence,  would  practically 
put  aU  b«,ks  on  the  same  footing  in  the  public  eye, 
and  would  work  a  palpable  injustice  to  those  ba^s 
which  have   by  years  of  somid  banking,  established 
themselves  firmly  m  the  confidence  of  the  public. 

With  such  supervision,  therefore,  would  go  a  great 
deal  of  responsibility  for  a  bank  failure,  and  this  re- 
sponsibihty  the  government  was  naturally  reluctant 
to  assume.  Another  objection  to  govermnent  super- 
vision would  be  the  fact  that  the  appointments  of 
exaimners  would  run  the  ris',  .,f  being  occasionally 
based  on  pohtical  expediency  rather  than  on  expert  ' 
knowledge  and  fitness  for  the  positions.  The  Cana- 
dian government  was  weU  advised  in  not  allowing  it- 


If 


to 


BANKING  PRINCIPLES 


self  to  be  burdened  with  a  new  and  unknown  respon- 
sibility. 

The  Canadian  Bankers*  Association  was  also  avei » j 
to  assuming  the  responsibility  of  inspection,  as  su  L 
action  would  be  considered  tantamount  to  a  guarantc:- 
by  the  associated  banks  of  the  solvency  of  the  indi- 
vidual banks.  Furthermore,  no  matter  how  impar- 
tially such  a  supervision  was  exercised  by  the  Asso- 
ciation, it  would  always  be  open  to  misconstruction, 
and  any  bank  whose  affairs  called  for  criticism,  would 
not  be  Hkely  to  neglect  an  opportunity  of  appealing 
to  the  public  sympathy  with  a  cry  of  persecution. 

The  system  finally  adopted  promises  to  overcome 
the  above  objections  and  to  be  a  satisfactory  solution 
of  the  question.  The  act  provides  for  the  appoint- 
ment of  auditors  by  the  shareholders  of  each  bank 
from  a  panel  of  forty  or  more,  selected  by  the  general 
managers  of  all  the  banks,  and  approved  by  the  Min- 
ister of  Finance.  These  auditors  check  the  cash  and 
verify  the  securities  of  the  head  office  and  such 
branches  as  they  may  deem  necessary  to  visit,  and 
report  ^o  the  shareholders  annually  upon  the  affairs 
of  the  bank. 

4.  Abstract  of  the  Bank  Act — A  knowledge  of  the 
Bank  Act  is  most  necessary  in  the  study  of  both  the 
theory  and  the  practice  of  Canadian  banking,  and  in  a 
volume  of  this  nature  a  brief  synopsis  of  the  act  will 
be  found  useful.  The  full  text  of  the  act  should  be 
consulted,  of  course,  when  the  exact  wording  is  de- 
sired. 


I  THE  BANK  ACT  21 

I        5.  Title  and  interpretations  (Sections  1-2).— The 
I    Act  may  be  cited  as  THE  BANK  ACT.  The  intension  of 
-    the  Act  in  its  use  of  certa-n  words  and  expressions  is 
clejirly  defined. 

m        8-  Application  of  the  Bank  Act  (Sections  3-7)  — 
The  provisions  of  the  Act  apply  to  the  following 

OSLTuLSl 

The  Bank  of  Montreal    Montreal 

The  Bank  of  Nova  Scotia    Halifax 

The  Bank  of  Toronto Toronto 

The  Molsons  Bank '   Montreal 

La  Banque  Nationale Quebec 

The  Merchants  Bank  of  Canada Montreal 

La  Banque  Proyinciale  du  Canada Montreal 

The  Union  Bank  of  Canada Winnipeff 

The  Canadian  Bank  of  Commerce Toronto 

The  Royal  Bank  of  Canada Montreal 

Ihe  Dominion  Bank Toronto 

The  Bank  of  Hamilton "  , .'   Hamilton 

The  Standard  Bank  of  Canada Toronto 

La  Banque  d'Hochelaga Montreal 

The  Bank  of  Ottawa Ottawa 

The  Imperial  Bank  of  Canada Toronto 

The  Home  Bank  of  Canada Toronto 

The  Northern  Crown  Bank Winnipeg 

The  Sterling  Bank  of  Canada Toronto 

The  Weyburn  Security  Bank Weyburn 

The  Bank  of  British  North  America London,  Eng. 

The  Act  extends  these  charters  from  July  1,  1918, 
to  July  1,  1923,  and  makes  special  provision  for  the 
Bank  of  British  North  America,  which  still  operates 
under  its  original  royal  charter. 


TW 


ss 


BANKING  PRINCIPLES 


7.  Incorporation  of  banks  (Sections  8-12). — The 
conditions  under  which  a  new  bank  may  be  organized 
and  the  procedure  necessary  are  clearly  set  forth. 
The  first  step  is  to  obtain  an  Act  of  Incorporation  by 
means  of  an  application  signed  by  at  least  five  re- 
sponsible men,  known  as  provisional  directors,  who  are 
able  to  satisfy  the  Parliamentary"  Committee  on 
Banking  and  Commerce  that  their  project  is  a  gen- 
uine one,  that  they  are  fully  aware  of  the  responsi- 
bility of  their  undertaking,  and  that  they  have  the 
ability  and  backing  necessary  to  carry  out  the  organi- 
zation of  a  bank  successfully.  If  the  committee  re- 
ports favorably,  letters  of  incorporation  are  granted, 
and,  after  ten  days*  public  notice,  the  provisional  di- 
rectors may  advertise  for  public  subscriptions  and 
cause  stock  books  to  be  opened.  No  bank,  howe^'^^r, 
can  be  incorporated  with  a  capital  of  less  than  $  : 
000,  divided  into  shares  of  the  par  value  of  }f;^*/ 
each. 

8.  Organization  of  banks  (Sections  13-17). — If 
within  a  year  the  sum  of  not  less  than  $500,000  of  the 
capital  stock  of  the  bank  has  been  bona  fide  sub- 
scribed, and  not  less  than  $250,000  paid  in  and  de- 
posited with  the  Minister  of  Finance,  the  provisional 
directors  may,  by  public  notice  published  for  at  least 
four  weeks,  call  a  meeting  of  the  subscribers  for  the 
purpose  of  organizing  the  bank.  At  this  meeting  the 
subscribers  shall  elect  five  or  more  qualified  directors 
to  replace  the  provisional  directors,  determine  the 
date  of  the  annual  meeting,  etc.     A  certificate  of  the 


THE  BANK  ACT  gg 

Treasury  Board  ■  permitting  the  bank  to  commence 
busmess  may  now  be  applied  for,  but,  before  isJ^a 

"fitdf  '"*""*''  '"^  """""^  ^o""  "-t  "eT* 

«enui^"f^:~  """  ^"'•^"'^"'-  -  "^ 
2^  That  the  deposit  of  $250,000  with  the  Minister 
ITT:^:'  ^■"  '"'"'^  ""•*  ■'  »«"  -  h-  hands 

44  el*;?"*""  "^  '"""''^•^  ""-^  have  been 

4.  That  the  expenses  of  incorporation  and  oreani- 
zation  are  reasonable;  ^ 

wift.  '^'^'  ""  "*"  '■^"''■^'"^''ts  have  been  complied 
the^^r'^'"!"? ''  ^"""'^  satisfactory  a  certificate  will 

less  a  reduction  of  $5,000  as  the  initial  payment  on 
account  of  the  Bank  Circulation  RedempfC  FunS 
(see  Section  64).  Then,  and  not  until  ?hen!  ,*  fte 
new  bank  able  to  issue  notes,  open  branches  ani  l^ 
the  general  business  of  banking  ** 

cateofthrT  "^  '"'"'f «'''-".  however,  the  certifi- 
cate  of  the  Treasury  Board  is  not  obtained  within  one 
year  from  the  date  of  the  passing  of  the  Act  o?  Z 

|.  "C.^™^^S"^i^iiXXr  ^"■.r"  *'  "^  "' 

Is  the  dMlra,™  of  the  board  whjk       of  Ffnance  and  Recclrer-Gener.I 
tlm.  by  the  a,velr-l„i„„S  Vhe  ?«at%°°C;:i'"' ,'"""  ''™  '° 


ym 


14 


BANKING  PRINCIPLES 


corporation,  all  the  rights  and  privileges  granted 
thereunder  cease,  and  provision  is  made  for  the  equi- 
table liquidation  of  any  bank  so  unsuccessful.  The 
severe  penalties  attached  to  any  infraction  of  the  reg- 
ulations covering  the  incorporation  and  organization 
of  banks  are  set  out  in  Sections  131  and  132. 

10.  By-laws  (Section  18). — The  shareholders  may 
pass  by-laws  regarding  the  following  matters:  the 
date  of  the  annual  general  meeting  at  which  share- 
holders elect  directors;  regulations  (subject  to  limi- 
tations mentioned  in  Act)  as  to  proxies;  the  number, 
quorum,  qualificat'Dns,  remuneration,  etc.,  of  direc- 
tors; limits  of  loans  or  discounts  to  directors  or  to  any 
one  person,  firm  or  corporation;  authority  to  con- 
tribute to  guarantee  and  pension  funds,  etc.  A  copy 
of  all  the  by-laws  of  a  bank  mur.t  be  sent  to  each 
shareholder  at  the  end  of  each  fifth  year,  beginning 
December  31, 1913. 

11.  Board  of  directors  (Sections  19-28).— The 
stock,  property,  affairs  and  concerns  of  the  bank  are 
managed  by  a  board  of  directors  who  are  to  be  elected 
annually  and  shall  be  eligible  for  re-election,  subject, 
however,  to  the  following  provisions: 

Each  director  shall  hold  stock  of  the  bank  as  absolute  and 
sole  owner  in  his  individual  right,  on  which  not  less  than 
from  $3,000  to  $5,000  has  been  paid  up,  the  amount  vary- 
ing according  to  the  paid-up  capital  of  the  bank.  This 
amount,  however,  may  be  increased  by  by-l^w. 

The  majority  of  the  directors  must  be  British  sub- 
jects living  in  Canada. 


THE  BANK  ACT 


S5 

The  method  by  which  directors  shall  be  elected  is 
provided  for,  also  the  manner  in  which  directors  shaU 
elect  the  president,  vice-president  and  fill  vacancies 
on  the  board. 

12.  General  powers  of  directors  (Sections  29-30). 
-The  directors  may  make  by-laws  for  the  regulation 
of  all  matters  m  connection  with  the  business  of  the 
bank  the  duties  and  conduct  of  the  employees,  and 
the  estabhshment  of  guarantee  and  pension  funds  for 
the  staff. 

The  directors  are  required  to  obtain  satisfactory 
security  from  all  officers  and  clerks  for  the  faithful 
performance  of  their  duties. 

13.  Regulations  as  to  shares  and  shareholders  (Sec- 
tions 31-32)  .-A  special  general  meeting  may  be 
called  at  any  time  for  any  purpose  by  four  or  more 
of  the  du-ectors,  or  by  at  least  twenty-five  of  the 
shareholders  who  own  not  less  than  one-tenth  of  the 
paid-up  capital  stock  of  the  bank. 

Votes  of  the  shareholders  at  any  meeting  must  be 

I  hy  baUot,  and  each  shareholder  has  one  vote  for  each 

j  share  owned.     Shareholders  may  vote  by  proxy,  but 

no  shareholder  who  is  also  an  employee  of  the  bank 

IS  allowed  to  vote. 

I  ^^J'^'^T  '''*  ^^''''^*^  ""^  "^^'^«^  *'^^^  (Sections 
d3-35)  — The  capital  stock  of  the  bank  may  be  in- 
creased at  any  time  by  a  by-law  passed  at  a  general 
meetmg  of  the  shareholders,  subject,  however,  to  the 

[approval  of  the  Treasury  Board. 

New  shares  issued  must  be  allotted  to  the  share- 


■Bl 


S6 


BANKING  PRINCIPLES 


holders  pro  rata,  on  such  terms  as  are  fixed  by  the 
directors,  with  certain  limitations  as  to  the  price,  the 
amount  and  the  frequency  of  the  calls  for  payment 
thereof. 

Provision  is  made  for  the  reduction  of  the  capital 
stock  of  the  bank  if  such  action  should  become  neces- 
sary. 

15.  Shares  and  calls  (Sections  36-42). — Shares  of 
the  capital  stock  of  a  bank  shall  be  personal  property. 
The  manner  of  subscribing  for  shares  and  making 
calls  thereon  is  provided  for.  Calls  shall  be  made  at 
the  option  of  the  directors,  but  such  calls  shall  be 
payable  at  intervals  of  not  less  than  thirty  days,  and 
in  amounts  not  exceeding  10  per  cent  of  each  share 
subscribed. 

There  must  be  printed  on  each  page  of  the  stock 
book  upon  which  subscriptions  for  new  stock  are  re- 
corded, and  "on  every  document  constituting  or  au- 
thorizing such  subscriptions,  on  a  part  of  the  page 
and  document,  respectively,  which  may  be  readily 
seen  by  the  person  recording  the  subscription,  or  by 
the  person  signing  the  document,  a  copy  of  Section 
125,"  which  provides  for  the  double  liability  of  the 
shareholders. 

16.  Transfer  and  transmission  of  shares  (Sections 
43-58). — No  transfer  is  valid  unless  the  stock  has 
been  accepted  in  writing  by  the  person  to  whom  the 
transfer  is  made,  and  the  person  transferring  the 
stock  has  satisfied  the  bank  as  to  any  hability  that  may 
be  due  to  it. 


THE  BANK  ACT  ^ 

shareregist  "   fflt  atllhT  ^  """branches  a 
i,«i^  •  /  '      ^"^^"  *^6  shares  of  the  shape- 

holders  resident  in  that  province  shaU  be  altered 
A  hst  of  aU  transfers  of  shares  rem^t^rlr    Tl 
:»  *"«ve  places  where^SnXf^lThtS 

oirsCir:'"''^'-"^p'^°-Heins;:r 

The  procedure  in  connection  with  the  sale  and 

1Z7T"  •";"""  "":^"  ^P--'  «oS  -ch 
h!n!       K  T    *""■•  '"""««e  Of  female  shareholders 
lunacy,  bankruptcy,  death  and  the  like  is  ^t  forth' 

trutt  ":?  r"'  """"•'  *"  ^^"^  ">  "■«  exe^util^a^ny 
^whil  .  "'P'''^*   ™P''^<'  <"•  constructive! 

to  which  any  share  of  its  stock  is  subject.  A  person 
ho  dmg  stock  as  executor,  trustee,  ^ardian  Tte^s 
not^personaUy  Kable  unless  the  t^st  is  ^t  di^ 

17.  Annual  and  special  statemenU  (Sections  54- 
83) .  -At  every  annual  general  meeting  the  outgoinir 

lomfranr*  """"  "  '""  ''*''*^"^"*  °^  ^^  s 

A  statement  of  the  profit-and-loss  account  for  the 

financial  year  next  preceding  the  date  of  the  alual 

iTZst  r*T  ""''  """-"P-y  fe   statTen 
These  statements  must  be  signed  by  the  general  man- 
ager or  otl..er  officers  of  the  bank  next  fn  authoX 
J«.d  on  behalf  of  the  board  by  the  president  orTLt 
jpresident  or  any  other  two  directors.    Copies  of  the» 

■      S«  Flpm  ,  ,„,  p^,Hbed  form  for  monthly  statement.. 


f8 


BANKING  PRINCIPLES 


statements  must  be  sent  tc    ach  shareholder  of  the 
bank  and  to  the  Finance  Minister. 

The  directors  must  also  submit  to  the  shareholders 
such  further  statements  of  the  affairs  of  the  bank  as 
the  shareholders  may  require  by  by-law  regulrrly 

passed. 

18.  Shareholders*  audit  (Section  56,  all  new). — 
Shareholders  of  a  bank  shall,  at  each  annual  general 
meeting,  appoint  and  fix  the  remuneration  of  an  audi- 
tor or  auditors,  chosen  from  a  panel  of  not  less  than 
forty  selected  by  the  general  managers  of  the  banks 
and  approved  by  the  Minister  of  Finance.  Full 
provision  is  made  for  filling  the  vacancy  caused  by  the 
death  of  an  auditor  or  the  failure  of  the  shareholders 
to  appoint  an  auditor.  Written  notice  of  the  inten- 
tion to  nominate  any  auditor  other  than  a  retiring 
auditor  must  be  given  at  least  twenty-one  days  before 
the  annual  meeting;  the  bank  must  cause  a  copy  of 
such  notice  to  be  delivered  to  the  retiring  auditor,  and 
particulars  of  the  nomination  must  be  forwarded  to 
each  shareholder  at  least  fourteen  days  before  the 

meeting. 

Every  auditor  of  a  bank  shall  have  right  of  access  to 
the  books,  cash,  securities  and  records  of  the  bank, 
and  is  entitled  to  require  from  the  directors  and  offi- 
cers such  information  and  explanation  as  may  be  nec- 
essary for  the  performance  of  his  duties. 

An  auditor  is  not  required  to  visit  any  branch  forj 
the  purpose  of  examining  the  books,  cash,  securities 
and  records,  but  he  may  do  so  if  he  considers  it  ad- 


THE  BANK  ACT  j. 

visabk.  It  is  sufficient  for  the  purposes  of  the  audit 
If  he  has  access  to  the  returns,  statements,  and  the  like 
wh>ch  are  sent  to  the  head  office  in  the  ordi  -a™' 
He  must,  at  least  once  during  the  year,  check  the  cash' 
ecu„t,es,  etc.,  at  the  chief  office  of  the  bank  17t 
those  branches  at  wljich  he  may  consider  it  adv^t 

holdm:  "  """^^  "  '^P"'  t°  *«  ^ha^ 

(a)  On  the  accounts  examined  by  them- 

(b)  On  the  checking  of  the  cash  and  SMuriC-s- 

(c)  On  the  statement  of  the  affairs  of  the  bank 
submitted  at  the  meeting; 

The  report  must  also  state: 

(a)  Whether  or  not  they  have  obtained  all  the  in- 

T^Z^lt  e'tplanation  they  have  required; 

thJ  h  r^i  .f'f  '^'^  "P™""'  *•>«  transactions  of 
a.e  bank  whKjh  have  come  under  their  notice  have 
been  withm  the  powers  of  the  bank  • 

boiki  oTSfbTnt  aTd'  ""'  "™"""  "^'"^  ""*  ""^ 
feri-eH  J^"**^''  '"  *''*''  "P™™-  the  statement  re- 

b»kt»k  ""''  7'"^  ™^  "^  '^  »t«t«  of  the 
IZ  f.^'  ''?~''"^'"«  *"  **  '•^'^t  of  their  informa- 
tion and  the  explanations  given  to  them,  and  as  shown 
by  the  books  of  the  bank. 

m;H^'*T''uT'*  ""^"P*"?  the  statement  sub- 
mrtted  to  the  shareholders  at  the  amiual  general  meet- 

Ulg, 

19.  Special  report  to  the  Minister  of  Finance  (Sec- 


w 


t    1 


80 


BANKING  PRINCIPLES 


tion  56a,  new)  .—The  Minister  may  require  any  duly 
appointed  auditor,  or  any  auditor  whom  he  may  se- 
lect, to  examine  and  inquire  specially  into  the  affairs 
and  business  of  a  bank,  and  the  auditor  so  selected 
shall,  at  the  conclusion  of  his  examination,  report 
fully  to  the  Minister  the  results  thereof. 

20.  Dividerids  (Sections  57-59) .—These  sections 
deal  with  dividends  and  the  method  of  their  payment. 
The  directors  are  permitted  to  declare  quarterly  or 
half-yearly  dividends,  but  no  dividend  or  bonus  shall 
be  declared  which  will  impair  the  paid-up  capital  of 
tli^  bank,  or  which  exceeds  a  rate  of  eight  per  cent, 
unless,  after  paying  the  same  and  providing  for  all 
bad  and  doubtful  debts,  the  bank  has  a  rest  or  re- 
serve fund  equal  to  at  least  80  per  cent  of  its  paid-up 
capital. 

Previous  to  the  payment  of  p  dividend  or  bonus 
the  directors  must  give  public  notice  for  at  least  four 
weeks  prior  to  the  date  fixed  for  payment. 

21.  Cash  reserve  (Section  60).— The  bank  must 
hold  in  Dominion  of  Canada  notes  not  less  than  40 
per  cent  of  the  cash  reserves  which  it  has  in  Canada. 
Arranf;ements  for  issuing  Dominion  notes  in  ex- 
change for  gold,  and  for  redeeming  them,  are  made  at 
the  branch  offices  of  the  Department  of  Finance, 
namely:  Toronto,  Montreal,  Halifax,  St.  John, 
Winnipeg,    Victoria,    Charlottetown,    Regina    and 

Calgary. 

22.  General  note  issue  and  circulation  of  notes 
y  Section  61 ) . — A  bank  may  issue  and  reissue  its  notes 


THE  BANK  ACT 


31 


payable  to  bearer  on  demand  and  intended  for  circu- 
lation to  the  amount  of  its  unimpaired  paid-up  capital 
No  such  note,  however,  shall  be  for  a  sum  less  than  five 
dollars  or  for  any  sum  which  is  not  a  multiple  of  five 
dollars. 

23.  Additional  issue  for  moving  crops  (Section  61 
sub-sec.  15-20.— During  the  usual  season  of  moving 
crops— that  is  to  say,  from  and  including  the  first  day 
of  September  in  any  year  to  the  last  day  of  February 
next  ensuing— a  bank  is  allowed  to  issue  additional 
notes  to  an  amount  not  exceeding  15  per  cent  of  its 
combined  unimpaired  paid-up  capital  and  rest  or  re- 
serve fund,  as  stated  in  the  monthly  return  to  the  gov- 
ernment for  the  month  immediately  preceding  that 
in  which  the  additional  amount  is  issued.    ^Vhile  such 
excess  notes  are  in  circulation  tht    anks  must  pay  to 
the  Minister  of  Finance  interest  on  the  excess  at  a  rate 
not  exceeding  5  per  cent  per  annum,  the  interest  to  be 
calculated  on  the  amount  of  notes  in  circulation  for 
each  day  during  the  month,  as  shown  in  a  return  to  be 
sent  monthly  to  the  Minister.    This  feature  was 
added  to  the  Bank  Act  in  1908  in  the  form  of  an 
amendment  to  the  Act  of  1901. 

24.  Central  gold  reserve  issue  (Section  61,  sub-sec. 
3-13)  .—In  addition  to  this  special  provision  for  emer- 
gency circulation  during  the  crop-moving  period,  the 
new  act  provides  for  an  increase  of  circulation  at  any 
time  against  the  deposit  of  current  gold  or  Dominion 
notes,  in  what  is  termed  the  central  gold  reserves. 
These  central  gold  reserves  are  under  the  control 

XVI— 04 


32 


BANKING  I'KINCIPLES 


|r 


f  f 


of  four  trustees,  three  appointed  by  the  Canadian 
Bankers'  Association,  and  one  by  the  Minister  of 
Finance.  It  is  the  duty  of  the  trustees  to  receive 
gold  coin  and  Dominion  notes  that  any  bank  may  de- 
sire to  deposit  with  them,  and  the  bank  may  then 
issue  extra  circulation  up  to,  but  not  exceeding,  the 
amount  of  such  deposit.  When  any  part  of  the 
amount  deposited  in  the  central  gold  reserves  is  not 
required  for  the  purpose  of  issuing  notes,  the  surplus 
may  be  returned  to  the  bank  by  the  trustees  upon 
formal  application.  The  central  gold  reserves  are 
subject  to  frequent  inspection  and  audit  by  the  De- 
partment of  Finance. 

25.  Note  issue  in  British  colonies  (Section  62). — 
Provision  is  made  for  issuing  notes  in  pounds  sterling 
or  in  dollars  at  agencies  of  a  bank  in  any  British  col- 
ony or  possession  other  than  Canada.  The  denomi- 
nations of  such  notes  are  limited  to  one  pound  sterling 
or  any  multiples  of  that  sum,  or  five  dollars  or  multi- 
ples thereof,  and  the  amount  issued  in  this  vjray  must 
be  treated  as  a  part  of  the  general  circulation  of 
the  bank. 

26.  Pledge  of  notes  prohibited  (Section  63). — A 
bank  shall  not  pledge,  assign  or  hypothecate  its  own 
notes,  and  no  loan  thereon  shall  be  recoverable  from 
the  bank  or  its  assets. 

27.  Bank  Circulation  Redemption  Fund  ( Sections 
64-69) . — Each  bank  must  maintain  with  the  Minister 
of  Finance  a  deposit  equal  to  at  least  five  per  cent  of 
the  average  amount  of  its  notes  in  circulation  during 


ii-; 


THE  BANK  ACT 


SS 


the  year.    These  deposits  tre  known  as  the  Bank 
Circulation  Redemption  Fund,  and  are  held  only  for 
the  purpose  of  redeeming  the  notes  of  any  banks  which 
fail  to  redeem  their  own  issues  in  specie  or  Dominion 
notes.     For  all  notes  so  redeemed  the  fund  has  the 
same  rights  against  the  estate  of  the  failed  bank  as 
any  other  holder.     Interest  at  three  per  cent  is  al- 
lowed by  the  Government  on  the  fund.    The  amount 
at  credit  of  the  banks  in  this  fund  is  to  be  adjusted 
on  the  first  of  July  of  each  year,  in  such  a  way  as  to 
make  the  amount  at  credit  of  each  bank  equal  to  five 
per  cent  of  its  average  note  circulation  during  the  pre- 
cedmg  twelve  months.    In  calculating  the  average 
Circulation  the  average  amount  at  the  credit  of  the 
bank  in  the  central  gold  reserves  is  to  be  deducted. 

If  a  bank  suspends  payment  of  its  notes,  interest  ac- 
crues thereon  at  five  per  cent  per  annum^  untU  the 
day  named  for  their  redemption,  of  which  public  no- 
tice  is  given  by  the  liquidator,  after  which  interest  on 
the  notes  outstanding  ceases.     If,  after  the  expiration 
of  two  months  from  the  date  of  suspension,   the 
liquidator  has  not  funds  to  redeem  the  notes,  the  Min- 
ister of  Finance  may  redeem  them  out  of  the  Circula- 
tion Fund.     If  payment  made  from  the  fund  exceeds 
the  contributions  of  the  failed  bank,  the  other  banks 
must  recoup  the  fund  pro  rata  for  the  amount  of  the 
excess,  recoveries  from  the  liquidation  of  the  failed 

Art'^iK'^'r*'/""**'"'^.'"  ^'^'""^  ^^»  '^•^^  "dd«^<J  to  the  Bank 
Act  of  1890,  at  the  suggestion  of  the  banks  themselves.  The  rate  was 
oianged  fron?  six  per  cent  to  five  per  cent  in  the  revision  of  1900 


-^>;  »iiii*7v 


84 


BANKING  PRINCIPLES 


i  i 


J' 


^  r 


bank  being,  of  course,  distributed  in  like  proportion. 
For  this  purpose,  however,  no  bank  shall  be  required 
to  pay  in  any  one  year  more  than  one  per  cent  of  the 
average  amount  of  its  notes  in  circulation. 

In  the  winding-up  of  a  bank,  if  satisfactory  ar- 
rangements are  made  for  the  redemption  of  the  out- 
standing notes,  with  interest,  the  Treasury  Board  may 
return  the  amount  to  the  credit  of  the  bank  or  such 
part  as  may  seem  expedient. 

The  Treasury  Board  will  make  all  necessary  rules 
and  regulations  as  to  the  management  of  the  Circula- 
tion Fund. 

The  Minister  of  Finance  may  take  legal  action,  if 
necessary,  to  enforce  payment  of  any  sum  due  by  a 
bank  to  the  fund. 

28.  Redemption  at  par  ( Sections  70-71 ) . — ^Banks 
are  obliged  to  make  arrangements  to  ensure  the  circu- 
lation at  par  of  their  notes  in  any  and  every  part  of 
Canada,  and  must  maintain  offices  or  redemption 
agencies  for  the  payment  of  notes  at  Toronto,  Mon- 
treal, Halifax,  St.  John,  Winnipeg,  Victoria,  Char- 
lottetown,  Regina  and  Calgary,  and  at  such  other 
places  as  are  from  time  to  time  designated  by  the 
Treasury  Board.  Altho  the  notes  of  a  bank  are  al- 
most invariably  payable  only  at  its  head  office,  they 
must  be  accepted  at  par  at  any  of  the  branches,  agen- 
cies or  offices  of  the  bank. 

29.  Payments  in  Dominion  notes  (Section  72). — 
In  making  a  payment  a  bank  must,  if  required,  pay  in 
Dominion  notes  (legal  tender)  in  denominations  of 


THE  BANK  ACT 


35 


$1,  $2  and  $5,  not,  however,  exceeding  $100  in  any 
one  payment.  No  payment  in  Dominion  notes  or 
notes  of  the  bank  shaU  be  made  in  unclean  or  torn 
bills  and  the  Treasury  Board  has  the  right  to  make 
regulations  regarding  the  disinfection  and  sterilization 
of  bank  and  Dominion  notes  by  the  banks. 

80.  Signing  of  bills,  etc.  (Sections  78-74)  —Bills 
or  notes  issued  by  a  bank  are  binding  on  a  bank,  the 

not  sealed  with  the  corporate  seal  of  the  bank.    The 
du-ectors  may  deputize  an  officer  of  the  bank  to  sign 
I    notes  intended  for  cu-culation. 

If  both  the  signatures  on  a  bank  note  are  impressed 
by  machinery,  at  least  one  name,  together  with  a  dis- 
tmguishmg  device  and  number,  must  be  impressed  or 
engraved,  under  authority  of  the  bank,  after  the  notes 
hp      been  received  from  the  engraver  or  printer. 

81.  Counterfeit  notes  (Section  75).— Officers  re- 
ceiving public  moneys  and  bank  officers  must  stamp  or 
write  on  fraudulent  bank  notes  or  Dominion  notes 
such  words  as  "Counterfeit,"  "Altered,"  or  "Worth- 
less," as  the  case  may  be.  If,  however,  a  bill  is 
wrongly  stamped  it  must  be  redeemed  at :  s  face  value 
by  the  officer  at  fault. 

REVIEW 
What  are  the  leading  features  of  the  Bank  Act  of  1913  > 

State  the  procedure  in  incorporating  a  new  bank. 

What  information  should  be  contained  in  the  auditor's  report? 

Are  WkTnil"  '5  Ti'  ^""'r"^  "^"«  •"  British  colonies? 
Are  banks  obliged  to  keep  their  notes  circulating  at  par? 


1   ! 


CHAPTER  IV 

THE  BANK  ACT  (Continued) 

1.  Business  and  powers  of  a  hank  (Sections  7ft- 
88)  .—The  first  section,  76,  is  of  sufficient  importance 
to  give  in  full.    It  states  that  a  bank  may: 

(a)  Open  branches,  agencies  and  offices; 

(b)  Engage  in  and  car^y  on  business  as  a  dealer  in  gold 
and  silver  coin  and  bullion ; 

(c)  Deal  in,  discount  and  lend  money  and  make  advances 
upon  the  security  of,  and  take  as  collateral  security  for  any 
loan  made  by  it,  bills  of  exchange,  promissory  notes  and 
other  negotiable  securities,  or  the  stock,  bonds,  debentures 
and  obligations  of  municipal  and  other  corporations, 
whether  secured  by  mortgage  or  otherwise,  of  Dominion, 
Provincial,  British,  foreign,  and  other  public  securities;  and 

(d)  Engage  in,  and  carry  on,  such  business  generally  as 
appertains  to  the  business  of  banking. 

Except  as  authorized  by  this  act,  the  bank  shall  not, 
either  directly  or  indirectly: 

(a)  Deal  in  the  buying  or  selling  or  bartering  of  goods, 
wares  and  merchandise,  or  engage  or  be  engaged  in  any  trade 
or  business  whatsoever ; 

(b)  Purchase,  or  deal  in,  or  lend  money,  or  make  advances 
upon  the  security  or  pledge  of  any  share  of  its  own  capiUl 
stock,  or  of  the  capital  stock  of  any  bank ;  or 

(c)  Lend  money  or  make  advances  upon  the  security,  mort- 
gage or  hypothecation  of  any  lands,  tenements  or  immovable 
property,  or  of  any  ships  or  other  vessels,  or  upon  the  se- 
curity of  any  goods,  wares  and  merchandise. 

M 


THE  BANK  ACT  ,., 

The  bank  shaU  have  a  privfleged  hen  on  shares  nf 

of  r^oS  °"  t'"''"'^  ^"  "^  'ieHofZ!ut 
or  a  shareholder.    In  case  of  default,  provision  is 

made  for  the  sale  and  transfer  of  such  A^JsZ^ 
hrehre  months  after  the  maturity  of  the  debT^d  a^ 
due  notice  to  the  debtor.  ="' ana  alter 

heIdr^i,°°K''  T^"  '"  *'  *='*  "f  "-""teral  security 

A  bank  may  hold  real  property  for  its  own  use  and 
occup^on,  and  may  sell  the  same  and  ac^LHtt^ 
property  „  its  stead  for  the  same  purpo^  " 

so^l  n  °"/  ^^^  '  '"°''8»«"  °°  ««'  «»t«te  or  per- 
sonal  property  by  wiy  of  additional  security  f^  a 
debt  afready  contracted. 

A  bank  may  acquire  title  to  real  property  on  which 
It  has  a  hen  as  security  by  purchasing  the  e^iity  T^. 
dempbon  or  by  foreclosure.  No  bank,  howTver  fa 
^wed  to  hold  property  except  for  its  own  uL  and 
occupation  longer  than  twelve  years. 

»•  *■  T.Z^'T"'  "'"P'*  <"  collateral  ,ecuHtv  rSec- 

curity  of  standmg  tmiber  and  on  the  rights  held  bv 
persons  to  cut  or  remove  such  timber. 

A  bank  fa  empowered  to  lend  money  to  a  receiver 
or  hquidator  appointed  mider  the  Wtoding-uTi^T 
and  to  take  security  in  connection  therewith 

.n^rr^'  ^'T  *"  ^^"'^'^  """^y  ^o'  b"il*ng  ship, 
and  to  take  such  security  thereon  as  fa  permissible  for 
mdividuals  under  the  taws  of  the  respective  provto,^ 


88 


BANKING  PRINCIPLES 


1.1 


Power  is  given  to  advance  money  on  warehouse  re- 
ceipts and  bills  of  lading. 

The  provisions  embodied  in  what  is  known  as  "Sec- 
tion 88"  have  proved  an  important  factor  m  the  in- 
dustrial and  agricultural  development  of  Canada. 
The  clause  permitting  loans  to  farmers  under  this 
section  appears  for  the  first  time  in  the  Act  of  1918. 
The  main  text  of  Section  88  is  as  follows: 

The  bank  may  lend  money  to  any  wholesale  purchaser,  or 
shipper  of,  or  dealer  in,  products  of  agriculture,  the  forest, 
quarry  and  mine,  or  the  «ea,  lakes  and  rivers,  or  to  any 
wholesale  purchaser  or  shipper  of  or  dealer  in  live  stock  or 
dead  stock  or  the  products  thereof,  upon  the  security  of 
such  products,  or  of  such  live  stock  or  dead  stock  or  the 
products  thereof. 

The  bank  may  lend  money  to  a  farmer  upon  the  se- 
curity of  his  threshed  grain  grown  upon  the  farm. 

The  bank  may  lend  money  to  any  person  engaged  in 
business  as  a  wholesale  manufacturer  of  any  goods,  wares 
and  merchandise,  upon  the  security  of  the  goods,  wares  and 
merchandise  manufactured  by  him,  or  procured  for  such  man- 
ufacture. 

All  advances  secured  under  Sections  86-88  have 
priority  to  the  claim  of  an  unpaid  vendor  unless  he  had 
a  lien,  of  which  the  bank  was  aware,  on  the  goods. 
The  material  or  goods  on  which  a  bank  has  a  lien  by 
warehouse  receipt  or  pledge,  under  Section  88,  may  be 
converted  by  manufacture  without  the  bank  losing 
its  lien  thereon.  In  the  case  of  the  non-payment  of  a 
debt  thus  secured,  the  goods  may  be  sold  under  cer- 
tain specified  conditions. 

A  bank  cannot  acquire  or  hold  any  warehouse  re- 


THE  BANK  ACT  gg 

ceipt,  bill  of  lading  or  pledge  of  goods  to  seeure  any 
debt  un  ess  such  debt  is  negotiated  at  the  tim^f  the 
^msition  of  the  security  by  the  bank,  or  upon  Z 

S    Sui  r  V.^J^r"'*''  ''°'^'^  ^  «*^»  to  the 
ti™,;.  y         !v    *^'  ''°'"^"'  "'y  ^  renewed  from 

SVorhl^  ^T^  "^  "''"'"»««  ''"rehouse  re- 
K  Je^It?'  ''"^^' "  ""^  ^*"'''  -*-'  -ff-t- 

wf  '^f  hit  '"'"^f  '5"^  *^''*<'«''*  (Sections  91- 
i,t.;^   ^-   ""''  '^'P"^*"  ^<"'  °'  ««<*  such  rate  of 

receive  in  advance  any  such  rate,  but  no  higher  rate 
than  seven  per  cent  shall  be  recoverable  by  ^e  b^ 

upon  deposi  s.    The  Uability  of  the  bank  to  rep^ 
money  deposited  with  it  is  not  affected  by  any  sS 

iT^rrr'^iI''"  ."•"*"«  *°  Pres'cription 

A  branch  bank,  when  discounting  bills  parable  at 

"te*;'  to  ""'  ""^  *"^'  <»"-'--•  »  S^  to 

In  discounting  bills  drawn  on  places  where  a  bank 
has  no  branches  this  rate  may  b^  increasjto  «  rf 
one  per  cent ;  minimum,  25  cents. 

.*•  Deporita  (Sections  95-98).— A  bank  in«^  ~ 

^rto  rf  i""  ""^  P-°n.  wheth^    ua"«^  by- 
law to  contract  or  not,  and  may  repay  the  same  to 

such  person  unless  the  money  is  lawfully  cLrd  by 


40 


BANKING  PRINCIPLES 


i'X 


another.  Where  this  conflicts  with  the  law  of  a  prov- 
ince regarding  minors,  married  women  and  other  per- 
sons not  competent  to  enter  a  contract,  the  total 
amount  received  from  such  person  shall  not  exceed 
$500. 

A  bank  is  r^  bound  to  see  to  the  execution  of  any 
trust  in  relation  to  deposits. 

Provision  is  made  facilitating  the  transmission  of 
deposits  not  exceeding  $500  in  case  of  the  death  of  the 
depositor. 

Official  checks  of  the  Dominion  of  Canada  shall  be 
cashed  at  par  at  the  branches  of  every  bank  in  Canada. 

5.  Purchase  of  the  assets  of  a  hank  (Sections  99- 
111). — These  sections  provide  for  the  amalgamation 
of  banks  and  set  forth  the  necessary  procedure.  How- 
ever, before  a  bank  can  enter  into  any  agreement  to 
seU  the  whole  or  any  portion  of  its  assets  to  another 
bank,  it  is  necessary  to  obtain  the  consent  of  the  Min- 
ister of  Finance  in  writing.  The  agreement  to  sell 
and  purchase  must  then  be  submitted  to  the  share- 
holders of  the  selling  bank  either  at  its  annual  general 
meeting  or  at  a  special  general  meeting  called  for  that 
purpose,  a  copy  of  the  agreement  having  been  mailed 
to  each  of  the  shareholders  at  least  four  weeks  previous 
to  the  date  of  the  meeting. 

To  carry  a  resolution  approving  of  the  agreement 
the  votes  of  shareholders  representing  not  less  than 
two-thirds  of  the  amount  of  the  subscribed  capital 
stock  of  the  bank  are  necessary.  The  agreement  may 
then  be  executed  under  the  seals  of  the  banks,  and  ap- 


f 


CHARTERED   BANKS'   STATEMENT  TO  Ti 


SA\>K  OF  BANK 

Capital 
AutltoriK'd 

CAPITA 

.  HT<KK 

Amount 

of  reat  or 

nmrvt 

fund 

'4 

~ : 

Capital 
Hulnrribrd 

Caiiital 
Paid  I  p 

NolMI 

in 
circulation 

Bal  tin.. 

to  Doin. 
Gov   aft'T 

di*dlM-tuiK 

advancett 
for  CTTilita, 

pay-li.u. 
etc. 

Balan-.'a 

dii«-  t" 

Vru\  inital 

Uovrni- 

mi'iita 

J    IlffKMItw  1  V 
tllf  pul.lir! 

1       imyil.li- 
,    I'l  'l<-n.ahd 
1    in  Canada 

i 

I),  p...... 

tl,.-,...' 

'  altiT  iN.t, 
rir  'ID    I 
1     hi'-il'l,. 
j    luCani-l, 

:          » 

t 

t 

1 

1 

S 

t 

« 

$ 

1 

Hank  of  Montreal 

2.-|.IHIO,ll(IO 
.'i.tKIII.IXIO 
10,000,000 

10.(00,0(10 
2.72l>.«00 
6,000,(«M) 

16,000,000 
2,703,120 
A,U81,IS0 

16.000,000 

1,2.10.000 

10.ti03,610 

10 
7 
14 

14.188,228 
2.420.287 
S,27S,1I2« 

2.684,605 

37,18.-. 

4S2.U3U 

2.Ml.,l(l- 

I2fl.v.>; 

21l,Ml.-, 

;      4!'..1l)(l,H8<i 

:i..vii.:);i 
'    .i^.m.i.vMi 

!    ii,i.imi.iM 

,       lu.O.-^...- 

t,7!i,-.,i.;'. 

l^u.-l Bank            

hunk  of  Nova  .Srutia 

t 

Hunk  of  IfriliHh  North  .\nicrira     ,    , 

hunk  of  Toronto 

.Mi>tM>ni*  Bank 

4.8«A.AtUI 
lO.HOO.INN) 
.'•.OIKMIOO 

4,866.606 
5,(««),(«)0 
4,()00.()(X) 

4.8)16.066 
5.(XK).II00 
4,IX)0,0<K) 

2,920,000 

at»m»ru 

4,700.000 

8 
11 
11 

4,110.4.13 
4.418.4(12 
3,507,02.1 

45.5H5 
.V>,.1.o 
53.204 

6.1;;.  c*  HI 
70,113. 

in.iiitt 

l:l.,!22.'M,1 
H.lll.7l(.1 
'.Mi2(i.;m,i 

-•2.(»l  .■,."i 
-■|-..777,ll 

-  1-, 

- 

.1.000.000 
1II,000,IKI0 
2,(IOO,(«IO 

2.0flO.O<K) 
6,784,7(K) 
1,000,UI0 

J.OOO.OfX) 
6,784.700 
1,000,000 

1..1SO.000 

6,4ig.l7S 

S7S,000 

8 
10 
0 

l,934,<)2.1 

5.831,171 

924,178 

23.248 

3.14  ..122 

20.4W1 

i.Ki.iii: 

282.(I7.' 
l'J2.24l 

3.260.404 

I7.7.M.I22 

l.715.1l,-.5 

:!,-».ll.Vi.l.vl 

(i.;ttiti.ii2ii 

V 

Mcrohantii  Bank  of  Canada     

hanquu  Provinciule  du  Canada 

t      .. 

1  nion  Bank  of  Canada 

Cuimdiun  Bank  of  (Nmimerre    

Koyal  Bank  of  Canada 

S,0<IO,000 
2.-i,000,000 
2.J.0(»I,000 

.I.OOO.OOO 
l.'i.dfNI.OOO 
ll,560,(NN) 

.1.000.000 
l.l.OOO.OOO 
11, .1(10,000 

3,.3(M,D00 
12„100.U)0 
12,560.000 

8 
10 
12 

4,600,474 
12,921. ,135 
10,326.030 

I41.408 

1.8(11..>IS 

219,545 

13.20>..2Vl 

4, 171, .•.'«; 

6.472..I14 

17.61M.375 
72.172..170 
31,(H1,2'.I2 

2>..4:i.i,:io;i 
i«7,:t.vi.:»i 
71.»2:i.;ii» 

I'..'7j 
-  ..''.if 

1,1 
II 

i:. 

'miinion  Bank 

.nk  of  Haiitihon 

.-lundard  Bunk  of  Canada 

10.000.000 
3.000.000 
fi.(XIO.(»JO 

«.6.'i.'i„T00 
3.(NIO.00O 
2,»t7,20O 

.1.473,232 
3.(X«).0II0 
2.602.,116 

6,473,232 
3,.K)0,000 
3,302,516 

12 
12 
13 

4,7.10,800 
2,.1.15,:«KI 
2,250,883 

.15.0-18 
114.111 
243,749 

I6S..12K 

1,279,(IC.'i 

:i4.1l2.t 

lfi.S7(l.:l27 
W.OIK,?!"* 

lo.:i,i».m;i 

.H1.145,11J1 

24,:«IK,:i77 
2:i.lJt,';:i,i 

l,IH 

Ill 
i: 
1^ 

Hnnr]uR  d'Horhflaga 

hiink  of  dttiiwa  

IniiKTial  Bank  of  Canada 

4.000,(X)0 

.VOIKMIOO 

10.000,000 

3.9(M,900 
3.».'i2.7(H) 
7.000.000 

3.(M.1.930 
3.»41.:«X) 
0  922.388 

3,o(n,oao 

4,441,.')00 
7,000,000 

g 

12 
12 

3,016,465 
3..KI0.IK.1 
6.098,627 

.32,:M9 

8.4,442 

241, .173 

127.,147 

.^11..-.7.) 

1.983,9.10 

4.767,426 

U.l.i7,:w7 

20  506.816 

14.87l.,-,l.' 
20.H7H,OHi 
:t4.18<).wi7 

t'l  i  Sov«>rpM{n  Bank  of  CafmcU 

L'"i      Mi-tro|K>litan  Hnnk 

■Jl    :   Hume  Bank  t>(  Canada 

3,000,000 
2.(HIO.0(K) 
2,00<1.0<K) 

3.000.000 
l.(MIO,(NNI 
2,000,0(H) 

3,0(X),000 
I.OOO.IIOO 
l,93g.3.')0 

'    'i.23(MV)() 
6.T0.0U0 

"io" 

7 

2)1.:m5 

914.1.(2 

1.615.825 

'(i.l',744 

16.862 

'2.W37.25I 
2.6.13,781 

5..1«K,ti:ti, 
(i.(il.l.7!H 

L'J      NiirthiTn  Crtiwn  Bank 

:'  '■      sit-rling  Bank  of  Canada 

:.'l       Bunk  of  Vanr.iuver 

11.000.000 
3.(«l(l,000 
2.000.I»H) 

2,862.400 
1,22.3,600 
1.174,700 

2.7S6.284 

I,l:«..34it 

864,215 

300.000 

300.(XM) 

40,000 

6 
0 

2.0,13.428 

1,016..KI5 

585.732 

40.416 

1,.VW731 
1.1.1,,Vi3 
62.U96 

4.616.W14 

2.11.13.749 

66.1.864 

7,(Mi7.(l."..s 

4.(l.1li.'l71 

81li..1(i(i 

[ 

1,000,000 

632,200 

316,100 

65,000 

S 

201.070 



388,,M0 

.T43.(1,M 

Total. 

190.866.(106 

118,190,966 

116,.120.153 

108,9.10333 

99.143,411 



6.7«0.(K6  1 

34.075.51W 

3.16.,185.196 



621. .147.388 

.               -. 

Kd.iilK 

ASSETS 


NAME  OF  BANK 

Current  Gold  and  Sub- 
sidiary Coin 

Dominion  Notes 

ill 

J 

c  5 

Notes 

of 
other 
banka 

Cheques 

on 

other 

banks 

111 
II 

0    -J5 

Deposit,-* 
made 
with 

and  hal, 

due 

from 

other 

banks 

in 

Canada 

Due 
from 
banks 
and 
banking 
corres- 
pondent* 
in  the 
I'nited 
King, 

Due 
from 
bks.  and 
bunking 
corres- 
pondents 
else- 
where 
than  in 
Canadr. 
and  I'.  K, 

Doniii 
(l.,\-,r 

In 
Canada 

El»- 
where 

Total 

In 
Canada 

Else- 
where 

Total 

ni>-t( 

U1..I 

Pr..- 

vinci. 

tjovor 

ment 

secun 

ties 

1 

2 

Bank  of  Montreal 

(ioi'ltcr  Bank      

Bank  of  Nova  Seotia.   .  . 

t 

7.051.963 

375.838 

2.086.892 

804..354 
863  .179 
.562.496 

1.1.1.315 

1,389,497 

50,634 

780.4.14 
5.322.tMi:i 
1.896.787 

1.644.908 
7:W.8.19 
578.652 

306..121 
1.033.143 
1.686.527 

( 
3,070.257 

t 

10.722.220 

375,838 

4,178,484 

968,540 
863,079 
562,496 

163,765 

2,139,497 

59,634 

1,166,188 
7,504,231 
6,834,696 

1,64.1.382 
739.8,19 
578.652 

306.521 
1.033.143 
1,686,527 

t 

10,474,291 

731,788 

S,S62,288 

2,998,084 
3,870,647 
3,643,9<M 

1.534,5.36 

5.123.174 

308,244 

4,612,515 
10.303.601 
11,863.7T8 

.1.518.614 
3,321,191 
2,106,214 

1,978,281 
2.883,079 
10,819.462 

t 

4,2i6 
13 

288 

61 

12,31)2 
175 

t 

10,474,291 

731,788 

5,866,504 

2,998,097 
3,870,647 
3,643,904 

1,. 134.824 

5.123.174 

308.244 

4.612.576 
10.315.904 
11.863,953 

.1.518.614 
3.321.191 
2.106.214 

1.978.281 
2.883.079 
10.819.462 

790,000 
121,000 
244,793 

1,436,748 
228,000 
200,000 

100,000 
325,0«) 
52,000 

240,000 
738,500 
578,000 

260,000 
1.10.000 
130,000 

123.300 
185.6.17 
326.350 

27,320 
51,.100 
80,(iOO 

114,663 
53,747 
37,1.15 

13.000 





t 

1,913,121 
146,234 
754,995 

311,272 
368.418 
349.892 

428.195 
746,.397 
208,907 

708.030 
1.475.274 
2.571,739 

546,908 
319.6.30 
235,320 

100,065 
411.120 
623.83.1 

> 

4,435.027 

916.6(4 

2,635,599 

1,121,694 
2,4.39.349 
1,987,056 

820,271 

3,516,009 

495,243 

2..172.285 
5.961.220 
5.276.542 

2.268.1.13 
1.490..148 
1,878.809 

1.6.10.471 
1,722.889 
4.243,986 

t 

128.0(10 
9.506 

% 

6 
298,248 

26.433 

8.101 

22,429 

67,2.16 

2.948 

609.001 

136.401 
2.881 
11,073 

276,i3i 
196,127 

3.38.729 
339.497 
664.791 

t 

1,.397,917 

1,108,(16(1 

95,426 

■  641,881 

t 

5..1»8,416 

310.(XMi 

1,663,871 

l.lMl,35e 
1,1.12,081 
1,293,264 

410,371 

5.32,311 

55,190 

801,818 
4,430,203 
2,187,807 

1,267,726 
177,436 
024,215 

70,727 

.109,409 

2.096.501 

t 
520.1 

3 

2,091,592 
164,186 

e82,e 
'nV,4 

437,C 

4 

Bank  of  Britiah  North  America 
Bank  of  Toronto       

ft 

Molaons  Bank 

Banque  Nationalc 

7 

8,450 
750,000 

8 

Merchants  Bank  of  Canada 
Banque  Provinctale  du  Cunudu 

I'nion  Bank  of  Canada 
Canadian  Bank  of  Commer.'e 
Royal  Bank  of  Canada         . 

Dominion  Bank 

Bank  of  Hamilton 

659  ,S 

U 

27,920 

.191,917 
194,447 
359,183 

130,258 

10 
11 
12 

13 
14 

385,734 
2,181,568 
4,937,909 

474 

620.7 
2..194. 
1,185 

431,: 
301,i 
598, 

890,! 

1,299,. 

557,! 

IS 

Standard  Bank  of  Canada   ,    . 
Banque  d'HtM-helaga 

16 

381 

'4,490,338 

17 

18 

10 

Bank  of  Ottawa 

Imperial  Bank  of  Canada 

.Sovereign  Bank  of  Canada. . .  . 

20 

Metropolitan  Bank 

Home  Bank  of  Canada 

Northern  Crown  Bank 

Sterling  Bank  of  Canada 

Bank  of  Vancouver 

185.390 
98.222 

2SS.842 
57.518 
21.569 

12.6.16 

165,.390 
98,222 

697,.326 
863,0.KI 

697.326 
863.050 

873.703 
613.044 

104.776 
141,040 

165,345 
130,030 
36.410 

6.310 

321,375 
404,000 

1,118.170 
392,855 
135,412 

16,230 

;;;:::: 

158,414 
101,038 

102,252 

10,000 

124,124 

91,873 

100,410 
71,472 

111.261 

224.873 

62.905 

39.883 

45, 

21 

54,643 
90,915 

22 

65, 

23 

.17.5181        6l.t'(ui 

24 

2I..169 
12.656 



220,645 
73.176 

38 

Weybum  Security  Bank 

73,176 

•■ 

Tout 

28..182.779 

13,.590.I70J42,172.949 

90.994.6.35 

17.0.1,1    91.(111.691 

j.eie,333 

12,908.263 

47.819,945 

138,100 

.3,588.651 

9,201,286 

24.892,762 

10,058, 

mam 


^m 


mta^ 


Ti  £  DOMINION   GOVERNMENT— JULY,    1913 


."* 
•iv 

I'.l 

LIABII.ITIKS 

«iiii 

n 

l.iianii  from 
.>lh<T  hsnka 

l^rurrci, 

includiiK 

l.illa  rr- 

c1(*<xiuouh1 

I>Pp4N>itll 

nimiii*  I'y 
anil  l>atani-ni 

due  to 
other  tihnka 
in  ('an*da 

Out-  III 
Imlikit  anil 

IwnkltTK 
ri>rri«p<>nd- 
rnta  in  liw 

1  niteil 
KitHfiluni 

1)11.'  u. 
Iianka  and 

hanking 

rurrfapnnil- 

entaelap- 

when-  than 

in  Canada 

i.r  the  I    K 

Bllla 
payabl* 

AmpV- 

aneca 

under 

letter!  of 

erMit 

Liabili 
not 
iiirlud                 r.,inl 

uudt                1  „il„|,|u., 
lorrieiw 

head 

Aiuire«»le 
aiiiouni  of 
liiani*  to 
diriTton 
and  hmiM 
I.r  ahiih 
thi'y  are 
pArtnera 

.Aver»«e 
amount  u( 
rurrent 
Kold  and 
NUlMidiary 
coin  held 

during 
the  month 

Average 
amount  of 
Dominion 

.Notea  held 

tlurint 
th«  moath 

(Ireati'M 
amount  of 

noti>a  in 

rireulation 

at  any  lime 

durum  the 

rouath 

i 

1 

t 

l,4aD..'iOH 
2.10,000 
109,343 

18,026 
74 .781 1 
01,751 

3.6.34 

8»4.3(H 

1,M5 

324,070 

778.987 
605,805 

101,9.15 

1,207 

780,062 

1 

42.210 

35.i..«9 

52,574 

12.122 

233,790 

1,530 

393,703 
1, 262.069 
1,216,666 

1,131.686 

0,18.1,090 

228.418 

75.220 
245.620 
682.071 

1,000,119 
628,873 

t 

815,298 

8,761 

516,181 

416,736 
1 15.043 
188,300 

.32.245 
642.2)W 
107,902 

70,720 
3,385,861 
2,111,023 

1I7,.362 
55,431 

1 

1,820.078 
10,613 

5,046.797 

t 

2,575,617 

4,182 

60,340 

1,732,307 

712,310 

79,053 

6..M4 
108.042 

(                      « 

Pl7,00.-i..l21l 

330.''              17.li2U'li. 
10,  ..         i.l.3i;i.lim 

3J66.I               ■.l.i.VMlls 

.     ■           0".,.*.ii'i,H7,t 

.387.                11. 112:1.2  I'.l 

297.                .11..-||.1,lllll 
160.'    -          (i<>.14s.:ll7 
22,7-  '           ll).li95.229 

iiii,i:t.-,.:w:i 

7,''.:       .'jii.Ho.iivi 
*•'•-■        I.)1,021.20<1 

64.3tH».lM2 

37.798..'V4I 

37.92li.3l5 

28.5.VI :          24.9110.1101 

61.111.'          4:i.iW7.sl.l 

it).513.11ll 

3,762,11111             3.788..34I1 

^J            ll),2ti.'i.N07 

j        10.975,891 

t 

1,109,INI0 
.'108.129 
517,.570 

'..M25 

82.771 

510,264 

4;m.86<) 
.•>74.:i45 

860.S60 

1.141.0X8 

7110.KU 

6A2.814 

.'126.709 
137..500 

401.027 
430.052 
428,695 

'■',554',ii9 
73,375 

168,2:12 
44,378 
80,688 

9,477 

t 

8,081.600 

373.787 

4,IM8,0.->« 

»76..527 
8.58.737 
561.220 

156.290 

2,118.492 

51.025 

809..107 
5.876.000 
5.605.184 

1.624.8IMI 
723.3m 
574.495 

341.S17 
1,0:)0..'.32 
l,070.56«l 

iei).20« 
95.935 

283.28.5 
54,565 
20,400 

12,240 

t 

12.231.440 

735.921 
5,475,445 

.3,187,192 
3.670.137 
3.983.318 

1.038.226 

4.98:1.410 

U8,854 

4.B14.2.5.5 
11.511.000 
13, 146.9-20 

5.340.516 
1   ,49.4.V) 
1  ''53.420 

1.623.114 
2.774  .523 
10.257,216 

t 

1.5.616.4.58 
2.660,305 
5..'i53,807 

4.560.763 
4.898,800 
:l,882,827 

1.06.5.840 

6.660.H60 

070,208 

.5.016.634 
13.827.000 
10.019,177 

5.328,000 
2.858,105 
2.400,583 

3,302,617 
3,819,500 
6.839,497 

26  ..345 

984.802 
1.867,600 

2,225,400 

l,091,.'iOS 

605,700 

206,385 

1 

1."  ; 

!••'■         ,  r,4»4 



3 

II 

SIIM 

"i 

:  8.13 

I-Vt             ■   ,733 

;io:t  '        1  i24,^ 

48,950 
3,104,977 
1,14.3,536 

766,283 
130,613 
162,978 

43,383 
178,170 
193,863 

10 

7)1         1'     7J,397 

11.5M.480 
1.324.390 

775,784 

i'W        .    -_  1,800 

11.'  1                   ,  1  848 

•.1.' 
nil, 

11 

128.6,'>5 
1(H.065 

16 

4.37 
144,220 

17 

IS 

319,770 
2,628 

7,513 
109,423 

347,035 
73,000 

83353 

V.7.IH5 
744,923 

!H)7.9(M 
526.887 
213.500 

65,142 

791 

21 
22 

i.. 

24 
25 

nw 

73.534 

«,iM.  :      15.j02..i:)4 
1,M1    i         7.I.5S.S86 

2.i:ii),8,-i9 

41.-Mr  1            974,853 

il71 
flM 

61,112 

3,438 

1 



388 

1 

i 

H>.,.,.«|,194 

6,002,057 

14,228,085 

9,713,020 

21,160,112    11.134.246 

•'637,90-|     I.27.'p.297.2«7l      1(110.13111 

37,107..557 

91,6.'>U.478 

1  '8,178,121 

■ 

ASSETS 


Ue 

ni 

and 
&inK 

■P8- 

enta 
e- 

re 

in 
»df, 

.  K 

n ii.'n 

(:,,i  ■Ti- 
ll,. I  1 

:ir.i, 

I'r., 

vinri.l 

(jovora. 

ment 

seeuri- 

tiea 

.s«:=si 

mi 

Railway 
and 
other 
bonda, 
deben- 
tures 
and 
•tocka 

Call  and 

abort 

loana  in 

Canada 

on  atoeka, 

deben- 
turea  and 
bonda 
(not  ex- 
ceeding 
30  daya) 

Call  and 
ahort 
loana 
elae- 
wheK 

than  in 

(not  ex- 
eeeding 
30  daya) 

Other 

current 

loana  and 

diacotmta 

in 
Canada 

Other 
current 

loana 

and 
diacotlnta 

elae- 

wher* 

than 

in 

Canada 

1 

If 

Loana 

to 
Pro- 
vincial 
Govern- 
ment* 

Loaoa  to 
citiM 
towna, 
muni- 

eipalitiea 

and 

aehool 

diatrii-' 

Or.r- 

Jil" 
di'lita 

Real 
estate 
other 
than 
bank 
piwm- 
iae« 

Mort- 
(agea 
on  real 
eatate 

•old 
by  the 

bank 

Baiik 

premiaea 

at  not 

.nore 

than 

cost,  lean 

amountH 

(if  any) 

written 

off 

Liabili- 
ties of 
cu»- 
tomers 
under 
letters 

of 

credit 
as  per 
contra 

Other 

assets 

not 

included 
under 

the  fore- 

Total 

Asaeta 

.416 

(KHl 

t 

520.125 

40.750 

882,643 

'UV,472 
437,000 

'550'i29 

620.707 
2..594.11I1 
1,185.112 

431,302 
301,2'>:i 
598,1111 

890.974 
1,209,.3.'7 

557,2ii,s 

* 

40,591 

252,446 

1,136,074 

1,537.351 

11.977 

697,865 

873,754 

518,899 

1,163,623 

445.119 
2,495,725 
2.646,355 

.579.623 
2.913.139 
1.214,778 

l.«2S,949 
2.029.595 
1.166,470 

* 

11,826,479 
1,939,076 
3,288,386 

211,056 

960,483 

1,644,343 

1.035.526 
4,350,221 
1,921.887 

2.705.621 
17.392.175 
13,645,438 

6,007,753 
609,245 
768,025 

204,500 
825,302 
803,549 

1,000.000 

1.089.444 

293,582 

610,805 
446,386 
103,588 

14,465 

« 

2,217,589 
4,157,.578 

2,523,890 
1,793,664 
5,957,455 

2.950.952 
4.608.838 
1,712,574 

3.751.777 
0.982.188 
8,453,850 

5,066,801 
1,333.298 
2,905,226 

472,489 

758,522 

4,504,486 

t 
48,481,588 

t 

113.788.672 
12,251.957 
38.608,604 

27,609,874 
40.747,249 
29,930,726 

14,518,929 

49,757,358 

5,220,778 

44.795.420 

I51.814.6.'i7 
88.327.585 

48,(X)0,276 
29.134.1.36 
29,781,632 

20,841,120 
3.5.157.201 
40,242,388 

t 
8,435,835 

» 

t 

301,214 

1 

6,494.11" 

300.1.'' 
72;i.7^i 

4,90fi..'i: 

2,381,1 1 7 

982.1  1'' 

.542..-"." 
1.315.71'. 

24S.-.'.'7 

3.7:i!l..'--i 

4.lliO.."'l'' 
3.31(i.'.'.J 

727.:l-.i 
1.5:tii.ll7 
1.3i:l.l'- 

2.l4s.r.J 
.3.81:1.17.1 
3,274,7  '-. 

t 

75,335 
165,019 
184,017 

447,028 
151,574 
290,310 

24,963 
173,061 
72,817 

179,694 
634.079 
417,782 

182,878 
118,924 
118,349 

386,824 
97,885 
85,565 

t 

1,622 
48,250 

12,349 

'  177,062 

73,134 
28,386 
11,321 

298,.377 
207,806 

4,000 
186,883 
31,000 

43,249 

82,9.'>.'. 
98,220 

t 

79.907 
20.775 

806 

'  14.532 

85.267 
16.009 
38,909 

83,088 
419,177 

956,359 

81.210 

1,983 

35,635 

59.465 

456,784 

S 

4.000.000 
1.201.007 
1.568.548 

1..V56.319 
2.578.226 
1.250.000 

664.493 

2.027.0:t3 

51, .564 

1.28.3.217 
.5,3(M.742 
5,008,345 

2.045,453 
2.016.962 
1.051,113 

816,510 
1.664.703 
2.093.027 

t 

2..-173.617 

4.182 

60,240 

1.732.207 
712.319 
70.053 

6..544 
106.042 

48.9.'JO 
3.104.977 
1.143,5.36 

766,283 
130,013 
162,978 

42.382 
178.170 
193,862 

t 

1.17.5.813 
148..'.:l5 
33.425 

3.639.702 

239,121 

15.682 
162.706 
143,740 

4.491 
76,745 

t 

231.668.300 
21.2(Hi.77K 
78.680,048 

(M..322.311 
,58..'-i06,.5«l 
6O.40O..53B 

24.316.505 
80.022.015 
12.401.845 

75..368..54R 
2.V)..576,288 
177,121.952 

77.483.479 
4.5.115.234 
44.289.774 

32.231.035 
53.052.164 
79,720,793 

4.601,551 
12.763.229 
13.659.274 

18..532.993 
9.025.678 
3,076,011 

1,365,104 

1 

2 
3 

4 

5 

,671 

,356 
,081 

6,523,915 
8,564.393 

5,115,038 
3,580,291 

156,430 
1,142 

,264 

,371 
,311 

,190 

2,9^,973 

'  131,426 

7 

8 
9 

10 
11 
12 

I? 

,818 
,293 
,807 

.726 

5.903.776 
10.625.  ISO 
8,092,72.'-. 

91,876 

679,798 
10,921.538 
14.019.957 

86,648 

149 
214,857 
190,724 

1,240, ire 

.4:«i 

260,1.53 
14,068 

143.471 

1.000 
4.3,495 

3,574,231 

■  ■  ■  ■  ^^iso 

76,4a3 
51,729 
56.395 

39.609 

14 

15 

16 
17 
18 

19 
20 
21 

215 

).727 
).40O 
(..501 

1.41(1 

45,1'.);) 

291,373 
.34,818 

125,240 
281,135 

938,874 
1,843,044 

643,140 

1,050,020 

275,000 

8,251,223 
8,654,124 

13.117.275 
5.211.841 
1,783.963 

882,269 

(is.n's 
242.»'< 

39«.7vi 
l.'.ti.J"i 
8:!.l  11 

35.1-ti 

17,035 
67,904 

114,041 
10,385 
78,372 

19,897 

44,088 
1,628 
1,800 

1,400 
8,931 

97,669 
15,000 

378.57S 
-a9,445 

369.245 
311.691 

57.729 

118,88« 

82,853 

,472 

1.261 

65.000 

7,135 

.K!:i 

3.438 

23 
24 

i.905 

,883 

25 

1 

1 

:::::::::|::::::;: 

2,762 

10,958,321  22.M4.905 

73,897,295 

67,991,255 

80.266.235 

858,420,069  {42,980,513 



2,111,836 

43.121   .-I 

4,291.308 

1.340,100 

2,471,176 

40,896,616  11.134.24« 

0.912.824 

1,519,517,013 

FiacBi  1 


T.   C.   BOVILLE 

Deputy  Minuter  o/  Finonet 


THE  BANK  ACT  4j 

plication  made  to  the  Governor-in-Council,  thru  the 
Minister,  for  approval  thereof. 

The  approval  of  the  Govemor-in-Council  i,  not 
pven.  however,  until  the  Minister  i,  satisfied  that"  U 
the  requirements  of  the  act  have  been  complied  with 
«d  the  neces«|ry  publicity  given  by  the  Z:ZTot 
notice,  in  the  Gazette  and  certain  newspapers  The 
approval  by  the  Govemor-in-Council  of  th.  . 

memwiUthen  be  evidenced  byaTrtified^^T^e' 
Order-m-Councl  approving  thereof. 

«.;  .    ,1° K*f  "'  *'"*  "'""«  ^"^-  °f  <=0""e.  cannot  be 

aTSiyt  ;t  br '^^  ■■"•  -"-"^^  ^-^  «e^ 

6.  «e<«rn»  to  government  (Sections  112-114)  _ 

The  Minister  of  Finance  may  call  for  special  re 
turns  from  any  bank  at  any  time.  '^ 

mif tot  Minter :  "'  "^^  ^•"-''"  ^^  '"'"'  *— 
tionfC  Lien  pW  ^ '^  '"  ""T?  "'  '"'''=''  ""  f"«" 

paid  during  thrfi?™"';™  :'•;!''  rJ'T"  ■'«» '«»» 

number  of  shares  held  by  each  "^dresses  and  the 

•  Se.  combtooi  sLtemente  of  .11  banks.  Figure  j. 


RETURN  OF  THE  TOTAL  LIABILITIES 
CANADIAN  BANKS  AS  REPORTED 


I'KBOMTAOB  TO 


Total 
Am«U 


Liabimiw 
(oPabUe 


0*pltal  tnthoriMd    

OaplUI  lubMribad    

OkpiUl  paid  up 

Amennl  of  rMt  or  rMcrro  fund 

Mat*  p*r  enU  of  la$t  divid»nd  d*clmr*d, 

p«r  etnt. 

LIABIUTII8 

1     NotM  In  cireaUtion  

8  fialaneo  duo  to  nnminion  OoTornmont 
■ftar  doduettoir  *dT*neM  (or  ereditt, 
paylUla.  ate 

8     BalancM  dno  to  Provincial  OoTemmenta 

4  Dc'oaitK  by  the  public,  payable  on  de- 
II  ind  in  Canada 

6  iJ.'poitta  by  the  public,  payable  after 
notice  or  on  a  flxed  day,  in  Canada. 

6  Dcpoaita  elaewhere  than  in  Canada. . .  . 

7  Loani  from  other  banka  in  Canada,  le- 

cured,   including  bllU  reditcounted. . 

8  Depoeita  made  by  and  balancea  due  to 

other  banka  in  Canada  

9  Due  to  banka  and  banking  correapond- 

enta  in  the  United  Kingdom 

10  Due  to  banka  and  banking  correapond- 

enta  eliewhere  than  in  Canada  and  the 
United  Kingdom  

11  Bllla  payable  

13     Acreptancea  under  lettera  of  credit.  . .  . 
IS     Liabilltlet  not  Included  under  foregoing 

heada   


Aggregate  amount  of  loans  to  directora, 

and  firms  of  which  they  are  partners. 
Average    amount   of    current    gold    and 

aubsidiary  coin  held  during  the  month 
ATerage  amount  of  Dominion  notea  held 

during  the  month    

Greateat  amount  of  notea  in  circulation 

at  any  time  daring  the  month 


1100,866.666 
118,100,966 
116,520,153 
108.969,888 


199,148,411 


6,760,046 
84,076,696 

866,585,106 

621,347,888 
86,600,194 


8,002,957 
14,228,085 


9,713,020 
21,169.142 
11,134,246 

8.537,905 


$1,275,297,267 


$10,106,316 
87,107,667 
91,656,478 

108,178,424 


13.56 
7.78 
7.07 
7.17 


6.63 


.44 

2.24 

23.47 

40.89 
6.70 


.89 
.94 


.64 
1.39 

.73 

.56 


83.98 


.66 
2.44 
6.03 
7.12 


14.97 
9.37 
9.14 
S.64 


7.77 


.68 

2.87 

37.96 

48.78 
6.79 


.47 
1.13 


.76 

1.66 

.87 

.67 


100.00 


.79 
2.91 
7.19 
8.48 


/  dtelare  that  th*  above  return  hot  hten  i^rtpared  ttnd$r  my  direction*  amd  U 

We  declare  thiU  the  foregoing  return  ii  made  up  from  the  hooke  of  the  Bank, 
elearly  the  /(tuin«{a<  position  of  the  Bank,  and  we  further  declare  that  the  Bank  hat 
{on  notM  lest  than  forty  per  eerU  of  the  eaeh  reeervet  which  it  hoe  in  Canada. 
this day  of 29.  • . . 


Fiouu  2 
42 


Form  Piwcribed  for 


AND  ASSETS  OP  ALL  THE 

TO  THE  GOVERNMENT  p., >.r........  „.,  „  ,^,,  „„ 


ASSETS 


Ourrtnt  gold  and  lubaidiary  coin 
I«  Oanad.,  •28.882.778 

Dominion  notes: 

Jn  C«iiad«,  $90,994,835. 

Dopo.it  with  tho  MiiutM  of  rin.iM  tot 
tlie  leourity  of  nota  circulVtion 

D.po.it  in  e«ntr.l  gold  raMr'i      

Not*,  of  othar  banCa   .  ."•"'*• 

CliMka  on  other  hanks.    

Due  from  bank,  and  bankin/«»ri««B«„H" 

rbn'itti'n'g^SST  '^'^^^^ 
Dominion    gOTornment    and'  proViAcl'.i 

government  eerTiritle.  P'OTinclal 

Canadian  municipal  aecuritiei,  kid'  Brit^ 

„  1  e^-  »?h:"nVa?.Sl".'n''"^"''  -"^ 
.nTJtoc'k'    '^'"'   l^MU.-  debenture.: 

*''day;?'*io;J;r'i«  i?°*  "cwding  thiri, 
o»y.J  loans  in  Canada  on  stocks  dn. 
iMntura.  and  bonds   . . .  '  "* 

days)  loan,  elsewhere  than  in  Canada 
Ornad"."*"*   ''"°"    ""»   «'1'"-0'">U    in 

"  ;'*S^.^Ki^^:n:sf^^''"'"^'''- 

^.'nd'  .*?ho^i*'?Htr*i?r'    "--P-"«" 
Overdue  debt.  .  

M^t't«if'  """■'■.  ♦hiAbinkpremk,..:: 
l2..  ?^    '^"'  ,\'  ""'  ""'■«'  than  cw* 

-,  Jll*"  "'  <'ustomflrf<  iinrt.r  lett or-,  a*   ' 
credit  as  per  contra   ...  | 

«oinrhe."<u'"  '"""*'*''  "°"*"  '"«  ^"^"^ 


10 


11 
12 


13 
14 


15 
16 


IS 
19 
20 

21 
22 
23 
24 

25 

28 


67,991,256 

89,2«6,235  \ 

86S, 429,069 

42,9«0  ',13 

2,111,836 

43  121.384 
4,291,208 
1,340,100 
2.471,176 

40.S96,616 

11.134.246 

9,912.824 


2,fiJ}  \ 

.73 

.65 


3.21 
.87 
.79 


correct  according  to  the  hookt  of  the  bank 


and  that  to  the  bett  of 
never,  at  — 


to  the  belt  of  our  knowUdar  nnA  h.u.i  .•»  •  ''  *•*'  ^''fountat 

-«y  «..  du/ing  the  ,eZi%  ''^icWe  ^a^  r^Z'^'reZ^Ali lA 


hief  decounCont. 

and 
Domin- 


JadiTMoal  Statement 


Fioins  3 —  continued 
43 


PreHdent. 

Ofnrral  Manager, 


44 


BANKING  PRINCIPLES 


7.  Payments  to  the  Minister  of  Finance  upon  dis- 
solution of  a  hank  (Sections  115-116).— The  liqui- 
dator of  a  bank  must,  after  three  years,  pay  to  the 
Minister  of  Finance  all  amounts  due  to  shareholders 
or  depositors  remaining  unclaimed,  together  with  all 
interest  due.  The  government  will  hold  the  money 
in  trust  for  the  owners  and,  in  case  of  interest-bearing 
deposits,  will  continue  to  allow  for  six  years'  interest 
at  the  rate  of  three  per  cent  per  annum. 

Liquidators  of  banks  are  also  required  to  pay  to 
the  Minister  of  Finance  within  three  years  an  amount 
equal  to  the  excess  of  the  outstanding  notes  in  circu- 
lation over  the  amount  at  the  credit  of  the  bank  in  the 
Circulation  Fund,  the  same  to  be  held  by  the  govern- 
ment for  the  purpose  of  redeeming  such  notes. 

8.  Canadian  Bankers'  Association  (Section  117- 
124).— In  the  event  of  the  suspension  of  a  bank  the 
Canadian  Bankers'  Association  is  intrusted  with  the 
appointment  of  a  curator  who  continues  to  supervise 
the  affairs  of  the  bank  until  it  resumes  business  or  until 
a  liquidator  has  been  appointed  to  wind  it  up. 

The  association  may  make  by-laws,  rules,  and  regu- 
lations respecting: 

(a)  All  matters  relating  to  the  appointment  or  removal 
of  a  curator,  and  his  powers  and  duties ; 

(b)  The  supervision  of  the  making  of  tho  notes  of  the 
banks  which  are  intended  for  circulation,  the  delivery  thereof 
to  the  banks,  the  disposition  made  o'  them,  and  their  final 
destruction ; 

(c)  The  custody  and  management  of  the  central  gold 
reserves  and  the  carrying  out  of  the  provisions  of  this  act 
relating  to  such  reserves. 


THE  BANK  ACT  45 

No  such  by-hw.  rule  or  regulation,  however.  shaU 
be  m  force  until  approved  by  the  Treasury  Boa^. 

9.  I^^olvency  (Section  125). -I„  the  event  of  the 

rSr  "1*'  f  "  ^"^  ■*"«  insufficient  to  pay 
Its  habUities.  each  shareholder  shall  be  liable  for  the 
defiaency  to  an  amount  equal  to  the  par  value  of  the 

:^  ''I'^k""'  "  '"'^*'°"  *°  -y  ^ount  not  pdl 
up  oD  such  shares. 

10.  Sutpentbm  (Sections  126-181 ) .—The  non- 
payment m  specie  or  Dominion  notes  of  any  of  its  lia- 
hM^  as  they  accrue  for  ninety  days  eor^ecutive  y. 
conshtutes  a  bank  insolvent  and  suspends  the  working 

length  of  tune  sufficient  only  to  enable  the  director,  t^ 
maKc  and  enforce  the  calls  on  the  shareholders  deemed 
necessary  to  pay  aU  the  liabilities  and  to  wind  u^^ 
b.«me.s  of  the  bank.  The  total  amount  of  such  caUs 
IS  hmited  by  Section  125. 

th,!w  ""t ''""  "^  " '""''  "^  '■"^  ^°'<» "  transferred 
tte^  stock  are  not  relieved  from  the  double  liability 
until  the  expu'ation  of  sixty  days. 
In  c««  of  insolvency  the  payments  of  notes  then  in 

the  bank,  the  second  charge  being  the  payment  of 
money  due  to  the  Dominion  government,  and  tte  thi^ 
charge  the  payment  of  the  money  due  to  the  Provin- 
aal  government.  <=  jrrovm 

■ml\S'^f\  ^^^'°"'  18lA-158).-The  remain- 
mg  actions  de^  entirely  with  offenses  against  the  act 
and  the  penalties  mcurred.    The  majority  of  the  pen- 


46 


BANKING  PRINCIPLES 


alties  are  applicable  to  banks  and  bank  officers,  but 
the  foUowing  five  may  be  incurred  by  the  pubUc: 

For  seUing  or  transferring  shares  contrary  to  the  require- 
ments of  the  act ;  -^  i 

For  issuing  or  drawing  any  instruments  intended  to  cir- 
culate as  money  or  to  be  used  as  a  substitute  for  money 

For  mutilating  or  defacing  bank  notes  or  Dominion  notes; 

J?  or  makmg  false  statements  in  connection  with  ware- 
house receipts  or  bills  of  lading,  or  for  wilfully  disposing  of 
or  withholding  from  the  bank  goods  covered  by  security 
under  Section  88,  an  indictable  offense; 

For  using  the  word  "Bank,"  "Savings  Bank,"  "Banking 
Company '  or  any  equivalent  term  without  being  authorized 
to  do  so  by  the  act,  nor  can  any  words  in  a  foreign  language 
with  a  similar  import  be  used. 

12.  Amendments  to  Bank  Act  during  1918-1916. 
—At  the  outbreak  of  the  war  in  August,  1914,  the  Do^ 
minion  Government  extended  the  emergency  currency 
privilege  thruout  the  whole  year,  instead  of  limiting  it 
to  the  usual  period  from  September  first  to  February 
twenty-eighth.  It  also  authorized  the  chartered 
banks  to  make  payments  in  bank  notes  instead  of  in 
gold  or  in  Dominion  notes,  untU  further  official  an- 
nouncement. These  amendments  were  not  availed  of 
to  any  appreciable  extent,  except  that  gold  was  not 
paid  out. 

An  amendment  to  section  88  of  the  Bank  Act  was 
made  in  March,  1915,  permitting  the  banks  to  lend 
money  to  farmers  for  the  purchase  of  seed  grain  upon 
the  security  of  the  grain  and  the  subsequent  crop. 
This  privilege  was  availed  of  to  a  very  limited  extent 
as  the  banks  were  content  in  mosw  cases  to  rely  upon 


THE  BANK  ACT  4,7 

the  general  credit  of  the  borrower,  as  they  had  in  the 

the^B^nfA  ?"'  '"°*''"  '""»'^«'>t  to  Section  88  of 

monfvl  „  ;   ""'  '"''''*  """'"'"»  """ks  to  lend 
money  to  a  farmer  or  to  any  person  engaged  in  stock 

ra.smg  upon  the  security  of  live  stock.*/„  ppov  „ces 
where  chattel  mortgages  are  legal  the  securHy  oTthe 
hve  stock  must  be  taken  in  the  form  of  a  chattel  morJ 
gage  du^y  registered.    In  any  province  in  which  th^n, 
are  no  statutes  or  ordinances  in  force  relating  to  Ms 
of  sale  or  chattel  mortgages,  security  may  be  Len  ^ 
way  of  an  assigmnent,  but  a  memorandum  of  such  se- 
curity must  be  published  in  the  Official  Gazette  of  the 
Provnce  w,thm  thirty  days  after  the  date  of  the  as! 
S'^f  I        T""'  ■•«q"i>-ements  defeated  the 

nubLt!  ^^}^"^'^^  naturally  objected  to  the 
publraty  mcurred  and  the  banks  on  their  part  were 
mjwdlmg  to  undertake  the  responsibility  and'^work  e" 
tailed  by  such  a  transaction. 

banL^"*  o/.^^^W*  ^rt.-The  whole  business  of 
bankmg  ,s  so  mtmiately  concerned  with  negotiable  in- 

V  StTV'^ J''"\«^™'"''^  *''^'-''^^'-- --» 
of  the  Bills  of  Exchange  Act  is  essential  even  to  the 
youngest  bank  clerk,  and  such  knowledge  is  best  Z 
Uined  by  a  study  of  the  act  itself.  Po^r  this  rlt 
1.  tie  or  no  attempt  has  been  made  in  this  book  to  ex- 
plam  the  nature  of  the  various  classes  of  negotiable 
mstruments.   Copies  of  the  act  are  easUy  obtainable- 


48 


BANKING  PRINCIPLES 


if  annotated,  so  much  the  better,  and  every  student  of 
banking  should  make  a  systematic  study  of  the  act 
until  it  is  thoroly  mastered.  Concise  notes  should 
be  taken  under  the  different  heads,  and  sufficient  space 
left  for  comments  or  illustrations  gathered  from  ac- 
tual experience  or  from  legal  decisions.  This  rough 
classification  gives  an  idea  of  the  scope  of  the  act- 


Sections 


1  16     Interpretation   and  general  provisions  of 
the  act. 


17-164 

17-34 

35-39 

40-41 

42-46 


BUls  of  Exchange. 

Form  of  bill  and  interpretation. 

Acceptance  and  interpretation. 

Delivery  and  oral  evidence. 

Computation   of  time,   non-juridical  days 
and  days  of  grace. 

Capacity  and  authority  of  parties. 

Consideration. 

Negotiation  of  bills. 
Presentment  for  acceptance. 
Presentment  for  payment. 
Dishonor  and  protest. 
Liabilities  of  parties. 
Discharge  of  bill. 
Miscellaneous. 
Checks  {Crossed  checks). 
Promissory  notes. 
Schedule. 

The  Bills  of  Exchange  Act,  like  the  Bank  Act,  is 
a  Dominion  statute  and  is  largely  based  on  and  fol- 
lows, ahnost  word  for  word,  the  English  Bills  of  Ex- 
change Act.* 


47-52 

6.3-59 

60-74 

75-84 

85-94 

95-126 

127-138 

139-146 

147-164 

165-175 

176-187 


THE  BANK  ACT 


49 


i 


REVIEW 
Under  wh.l  cmdiUoM  i.  .  b«ik  declared  taaoWent? 


CHAPTER  V 

NOTE  ISSUES  AND  THE  BRANCH  SYSTEM 

1.  Monetary  system.— The  monetary  system  of 
Canada  consists  of  gold,  paper  currenc3%  and  silver 
and  copper  subsidiary  coins,  the  latter,  however,  not 
being  legal  tender  for  amounts  over  $10  and  25  cents 
respectively.    The  unit  is  a  dollar  of  23.22  grains  of 
pure  gold.    Gold  coins  in  the  currency  of  the  United 
States  and  the  British  sovereign  are  legal  tender  for 
any  amount,  and  still  form  the  bulk  of  the  gold  re- 
serves of  the  government  and  of  the  banks,  as  it  is 
only  of  recent  years  that  Canada  has  had  a  distinct- 
ive gold  coinage  of  its  own.    Gold  coin  is  seldom  seen 
in  circulation  and  its  use  is  practically  confined  to  re- 
serve purposes  and  international  exchange  operations. 
Silver  is  used  for  the  subsidiary  coins  of  the  denomi- 
nations from  five  to  fifty  cents  and  copper  for  the 
cents.    With  these  exceptions,  paper  currency  is  prac- 
tically the  only  form  of  money  used  in  Canada.     It 
consists  of  two  kinds.  Dominion  notes  and  bank  notes. 
Dominion  notes,  or  "legal  tender,"  as  they  are  often 
called,  are  issued  by  the  Dominion  government  under 
the  authority  of  the  "Dominion  Note  Act,"  which  per- 
mits an  unlimited  issue  under  the  following  conditions : 
the  Minister  of  Finance  shall  always  hold  for  the  se- 

M 


1 

NOTE  ISSUES  51 

curity  and  redemption  of  Dominion  notes  up  to  and 
mcluding  $80,000,000,  issued  and  outstanding  at  any 
one  time  an  amount  equal  to  not  less  than  25  per 
cent  of  the  amount  of  such  notes  in  gold,  or  in  gold 
and  securities  of  Canada,  the  principal  and  interest 
of  which  are  guaranteed  by  the  government  of  the 
United  Kingdom.    The  amount  held  in  gold,  how- 
ever,  shall  never  be  less  than  15  per  cent  of  the  notes  so 
issued  and  outstanding.    As  security  for  the  redemp- 
tion   of    Dominion  Notes     issued     in     excess     of 
$30  000,000,  the  Minister  must  hold  an  amount  in 
gold  equal  to  such  excess.    The  total  amount  of  gold 
and  specie  held  by  the  government  on  June  30,  1913 
was  $100,487,593,  of  which  $93,863,538  was  held  in 
connection  with  the  outstanding  amount  of  Dominion 
notes  on  that  date  as  follows: 

Total  amount  of  outstanding  cir-  ^"^  ^^^ 

,      ^"^^*^°n $116,363,538 

L.ess  amount  protected  by  25% 

""^  ^°^^  30,000,000     $7,500,600 

Excess  over  $30,000,000  pro- 
tected by  full  amount  of 

^^^    86,863,538    86,863,538 

Total  gold   held   account   Do- 

'"'"'°"  "°*^« $93,863,538 

The  total  amount  of  gold  held  by  the  banks  at  the 
same  date  was  $87,944,392  (a  small  proportion  of  this, 
perhaps  three  of  four  per  cent,  being  subsidiar^ 
silver),  makmg  a  total  of  $138,381,985  of  gold  held 


H 


BANKING  PRINCIPLES 


by  the  banks  and  the  government  or,  allowing  for  the 
silver,  about  $183,000,000.  This  amount  will  repre- 
sent the  total  gold  holdings  of  Canada,  as  there  is 
practically  none  in  circulation  among  the  public.  If 
any  British  or  American  gold  is  paid  out  by  tourists 
or  others,  it  is  immediately  exchanged  or  deposited 
at  a  bank. 

The  total  amount  of  circulating  notes  in  the  hands 
of  the  public  on  June  80.  1918.  was.  in  round  figures, 
$127,500,000,  of  which  $105,700,000,^  (or  over  82  per 
cent)  was  in  the  form  of  bills  issued  by  the  chartered 
banks,  the  balance  $21,800,000.  being  in  the  form  of 
Dominion  notes.     These  figures  will  give  an  idea  of 
the  important  part  the  bank  circulation  has  played  in 
the  upbuilding  of  the  country.     Valuable  as  the  note 
issue  privilege  is  to  the  banks  it  has  proved  even  more 
valuable  to  the  country,  since  to  the  banks,  as  well  as 
the  railways,  may  be  ascribed  the  credit  for  the  phe- 
nomenal development  of  Canada  during  the  past 
twenty  years. 

2.  Dominion  notes.— Domimon  notes  are  legal  ten- 
der for  any  amount,  and  may  be  redeemed  at  the 
oflices  of  the  Assistant  Receivers  General  situated  in 
the  various  provincial  capitals.  They  may  be  issued 
m  any  denomination,  but  i  one  and  two  dollar  bills 
are  practically  the  only  den.  nination  in  active  circula- 
tion the  larger  bills  being  used  principally  by  the 
banks  for  clearing  and  reserve  purposes. 

,.r^^rJi-v  f"""^^  ^  ^f^""'^^  *''°"*  «11,000.000  representing  the 
•mount  of  biUs  in  process  of  clearing  between  the  banks,  and  held  in  the 
tills  of  the  several  banks  as  "bills  of  other  banks  " 


NOTE  ISSUES  5g 

,,  '^j'^,^^^^"™^"*  statement  of  June  80, 1918,  shows 
the  toUowmg  amounts  outstanding: 

Provincial  and  fractional  $769,426 

II 12,750,790 

J: 9,340,820 

J* 109,717 

Jn 6,854,985 

$ioS;::::;;;;;;;;;; ^^'^«« 


$500. 
$1,000. 


6,600 
2,880,000 


5,319,000     $36,274,538 

$500     Legal     tender    between 

1      *inftn     T^^l\"\ 365,000 

$1,000     Legal     tender    between 


^R  nnn    r  ^^"l^' '  J    • ' ; 2,029,000 

$5,000     Legal    tender    between 

^»"^» 77,695,000 


80,089,000 


$116,363,538 

It  will   be  noted   that   $80,089,000   is  given  as 

legal  tender  between  banks";  this  amount  consists 

of  special  notes  that  are  payable  only  to  chartered 

banks  m  Canada  and  used  by  them  as  before  stated. 

?36  274,588  is  available  for  public  use,  but  the  banks' 
statements  to  the  government  at  the  same  date  shows 
that  the  holdings  of  Dominion  notes  by  the  banks 
amounted  to  $94,544,199,  or  $14,455,199  in  excess  of 
the  special  bank  legals,  which  leaves  the  amount  ac- 
tually m  the  hands  of  the  public  at  that  date  as  $21  - 
819,339.  ^    ' 

8.  Bank  note  issue,— By  the  Bank  Act,  Canadian 


54 


BANKING  PRINCIPLES 


banks  are  empowered  to  issue  notes  of  $5  and  multi- 
ples thereof  up  to  the  amount  of  their  unimpaired 
paid-up  capital  against  the  general  security    ^  their 
total  assets  on  which  the  notes  form  a  first  lien.    All 
the  banks  are  requu-ed  to  insure  the  circulation  of  theu- 
notes  at  par  in  every  part  of  Canada.    This  is  effected 
by  requiring  each  bank  to  provide  known  redemption 
agents  in  the  cities  of  chief  commercial  importance, 
namely,  Halifax,  St.  John,  Charlottetown,  Montreal, 
Toronto,  Winnipeg,  Regina,  Calgary  and  Victoria. 
Every  bank  accepts  the  bills  of  every  other  bank  at 
par  and  forwards  them  to  the  nearest  branch  or  re- 
demption agent  of  the  bank  of  issue;  hence  every  day 
all  over  Canada  the  banks  undergo  a  severe  test  of 
their  ability  to  redeem  their  circulation  no  matter  how 
freely  it  is  offered  for  redemption.     This  is  one  of  the 
strongest  advantages  of  the  system,  and  makes  the  cir- 
culation perfect  and  free  from  stagnation.    The  circu- 
lation thus  varies  in  velocity  and  volume  as  the  activity 
and  requirements  of  the  country  demand,  revealing  to 
the  experienced  banker  the  conditions  of  trade  and 
finance  thruout  the  country. 

It  is  important  to  remember  in  considering  the 
note  issue  that,  in  the  tills  of  its  own  bank,  a  note  has 
absolutely  no  value  except  as  so  much  stationery. 
This  enables  the  banks  to  carry  a  good  supply  of  bills 
at  each  branch,  as  they  do  not  become  a  liability  of 
the  bank  until  they  are  paid  over  the  counter.  This 
is  a  very  valuable  feature,  as  it  not  only  allows  a 
bank  to  keep  a  good  supply  of  tiU  money  on  hand 


NOTE  ISSUES  jg 

without  loss,  but  it  enable,  a  small  branch  to  meet  an 
usually  large  demand  for  eash  either  in  the  wty  of 
repaymg  a  heavy  deposit  or  of  making  a  krge  loan. 

■J'JT"'^  1°  """  AoW«-.-To  prevent  the  eharg- 
ing  of  discount  on  notes  in  case  of  suspension,  „ot« 
of  faded  banks  bear  interest  at  the  rate  of  five  per 
cent  per  annum  from  the  date  of  suspension  until  re- 
deemed either  by  the  liquidator  or  by  the  government, 
and  each  bank  ,s  obhged  to  keep  a  depolu  with  the 
govermnent  for  this  purpose  equal  to  five  per  cent  o? 
its  average  circulation.     This  is  called  the  Bank  Cir- 
cutotior  Redemption  Fund,  and  should  it  ever  happen 
that  the  assets  of  a  failed  bank  are  insufficient  to  re- 
deem  the  notes  outsUnding  at  the  time  of  failure,  the 

iti  •  r:f      ^"  *'  '""  P™  "*"•     Th«  f^d  was 

The  note  holder  is  amply  protected,  first,  by  the 
total  assets  of  tl,e  bank ;  second,  by  the  double  liabihty 
of  the  shareholders;  and  third,  by  the  entire  redemp- 
tion fund     The  amount  of  circulation  outstan.Iing  at 

loo  n°^  f   T"'  i'J^'  '"'"'•  "  """"^  ""'"''«"•  $106.- 
000  000  for  the  whole  of  Cana,^n,  and  to  meet  this  the 

banks  could  show  total  assets  of  .$1,521,000,000  (in- 
eluding  five  per  cent  redemption  fund,  $7,500,000), 
and  double  liability  $116,000,000.  or  nearly  $78  asse  s 
for  every  five-dollar  note  issued.  Then  also  penalties 
tor  over-issue  are  extremely  heavy. 
It  may  be  noted  that  only  three  banks  have  a  cir- 


86 


BANKING  PRINCIPLES 


culation   that   much   exceeds  the  total   redemption 
fund. 

The  question  may  perhaps  be  raised,  why  should  all 
this  care  be  taken  to  protect  the  note  holder  against 
the  principal  creditor  of  the  bank,  the  depositor,  but 
it  must  be  recognized  that  there  is  an  essential  differ- 
ence between  a  note  holder  and  a  depositor,  the  former 
being  an  involuntary  creditor  and  the  latter  a  volun- 
tary one.    The  depositor  becomes  a  creditor  of  his 
own  free  will  and  for  his  own  benefit,  and  exercises 
his  own  choice  in  the  selection  of  a  bank.    The  holder 
of  a  note,  however,  receives  it  in  good  faith  in  payment 
for  labor  or  merchandise  and  should  be  fuUy  pro- 
tected.   A  note  issue,  to  fulfill  its  best  and  most  use- 
ful function,  must  be  absolutely  and  without  question 
as  good  as  gold.    One  of  the  strongest  elements  of 
security,  however,  is  the  fact  that  the  notes  are  sub- 
jected to  daily  redemption.    A  Canadian  bank  is  pro- 
hibited by  law  from  pledging  or  assigning  its  own 
notes,  consequently  the  only  way  it  is  able  to  put  them 
into  circulation  is  to  pay  them  out  over  the  counter. 
It  would  be  fatal  for  a  bank  to  issue  notes  except  with 
due  regard  to  its  ability  to  redeem  them.     It  is  seldom 
in  the  interest  of  any  bank  to  hold  or  pay  out  the  notes 
of  other  banks;  as  soon  as  a  bill  has  done  its  work  in 
the  hands  of  the  public  and  has  been  paid  into  another 
bank  it  is  promptly  presented  for  payment. 

5.  Elasticity.— The  most  admirable  feature  of  the 
note  issue  is  its  quality  of  elasticity.  In  every  coun- 
try, more  especially  every  new  country  where  the  ag- 


NOTE  ISSUES  57 

ricultural  interests  naturally  predominate,  the  altema- 
tions  of  the  seasons  and  the       ^cession  of  the  various 
agricultural  and  lumbering  products,  have  an  import- 
ant  mfluence  on  the  currency  requirements  of  thfna- 
tion.     In  Canada  the  machinery  of  the  circulation  svs- 
tern  IS  such  that  it  expands  and  contracts  automkt- 
ically  accordmg  to  the  wants  of  the  country.     It  will 
expand  to  pay  for  the  making  of  butter  and  cheese, 
the  mo  ,ng  of  the  crops,  and  for  lumbering  operations, 
but  v..e.  ,t  has  performed  these  duties  it  will  contrac 
silently  .nci  ;v,t).rrt  disturbing  the  money  market  or 
any  ot  tJie  lanlcs"  numerous  functions. 

Dmibar,  in  his  'Economic  Essays,"  thus  defines 
elasticity  m  currency: 

of  ^Ir^"?  responsiveness  to  present  increase  o  di:v.r,,ution 
Infl  fK  *V  P^^^'"  °^  adaptation  t.  :..  a  ..i  ;\  f  the 
month,  the  week,  or  the  day,  whether  ri.;-  jj  ..  Ur 
Elasticity  imphes  the  operation  of  courlr^   f ),,  l 


■a;:. 


:;  v::ay  be 
J^  t^rought 


rency  as  well  as  in  a  steel  spring.     Tha>'    ; 
responsive  to  demand,  it  is  necessary  thft,  iNvV.; 

work  m  the  da.ly  business  of  the  bank,  where  ..  ,.  >,Touah 

;"orrnr;;tS!  ~"^*^  '^  ^'^  -ea.  Viorsrt 

J-^easonal  fluctuations. -The  study  and  analysis 
of  the  monthly  cu^culation  returns  afford  much  inter- 
esting and  useful  information.  The  monthly  and  an- 
nual fluctuations  show,  year  by  year  and  season  by 
season,  every  change  and  pulsation  in  the  financial  life 
of  the  nation,  increasing  annually  in  volume  by  an  av- 
erage of  late  years  of  about  $8,000,000,  while  each 


58 


BANKING  PRINCIPLES 


month,  tho  sharing  in  the  general  annual  increase, 
shows  a  rise  or  fall  corresponding  with  the  same 
months  of  previous  years.  The  tables  in  Figure  8 
are  compiled  from  the  government  returns  and  illus- 
trate that  fact  very  forcibly.  It  must  not  be  over- 
looked that  the  figures  given  do  not  show  either  the 
maximum  or  the  minimum  amount  of  cu-culation  dur- 
ing the  respective  months,  but  simply  the  point  at 
which  the  issue  stood  at  the  end  of  each  month.  The 
maximum  amount  of  circulation  during  the  month 
is  given  in  the  government  statement,  but  the  figures 
at  the  end  of  the  month  are  generally  considered  as 
the  most  satisfactory  figures  to  deal  with. 

7.  Annual  changes. — Figure  8  shows  the  amount 
of  notes  in  circulation  at  the  end  of  each  month  from 
January,  1901,  to  January,  1918,  inclusive;  and  the 
average  cir  Mition  in  millions  for  each  year  of  the 
twelve  years  is  as  follows: 


Average 

1901 60 

1902 56 

1903 60 

1901 62 

1905 64 

1906 71 

1907 76 

1908 71 

1909 7* 

1910 82 

1911 90 

1912 100 


Circulation 
Minimum  Maximum 


45  Jan. 
49  — 
55  — 

57  — 

58  — 
61  — 
68  — 
67  — 
66  — 
73  — 
77  ~ 
88  — 


60  Nov. 

68  Oct. 
71  " 
74  Nov. 
79  — 
86  Oct. 

69  Nov. 
86  — 
92  — 
99  — 

112  — 
120  Dec. 


Paid-up 
Capital 

67 

73 

79 

£0 

85 

95 

96 

96 

97 

100 

108 

116 


NOTE  ISSUES  gg 

An  examination  of  the  average  circulation  shows  a 

"71^^    «  '**'"*y  """"*'  ""''''»«  from  $50,000,000 
m  1901  to  $100,000,000  in  1912.  and  there's  onlyZ 

JT    ■"  *f  "P''"'J  tendency.     In  1907  the  avera« 
had  reached  $76,000,000,  but  in  1908  dropped  to IsTf 
000  000.  a  loss  of  $5,000,000,  which  was  nTfuUy  „v 
e«d  even  .n  1909  with  its  banner  crops,  the  av'^r^e 
for  that  year  being  $74,000,000.    Any  depart,^ 

tion  can  be  traced  to  seasonal  or  temporary  reasons 
whjch  do  not,  as  a  rule,  affect  the  year  a7a  whl 
and  can  generally  be  ascribed  to  purely  CanTXn 
«.us«;  but  the  check  in  the  annual  inLase'andThe  de" 
crease  m  the  volume  of  the  circulation  tell  a  different 
and  more  senous  tale,  generally  that  of  unwise  spec^ 
lation  and  rts  inevitable  finale.    At  all  events  X 
^son  .  international  and  not  national  in  l^c^, 
and.  as  a  rule,  anses  out  of  the  financial  ills  of  our 
neighbor.    The  panic  of  ,907  in  the  United  Stat" 
ana  the  consequent  depression  in  business  during  the 
foUowmg  years  seriously  affected  the  circulationfand 
the  foUowmg  year,  1909.  shows  a  curtailment  of  aU  ex- 
pansion  and  enterprise  thruout  the  country.    A  simi- 

A'Xt*r,"l?  "^  '"""''  '"  ^°''-  "1  '-h  pani 
A  .eference  to  the  years  1892. 1898,  and  1894  shows 

mZ'Z '"";'t"°"  ^"  *''"^  y™'^  «»  $82,000,000, 
$84,«H),000,  and  $81,000,000  respectively,  the  latte; 
figures  showing  the  reaction  from  the  panic  of  1898. 
A  study  of  the  monthly  fluctuations  shows  that 
from  1868  to  1891  the  lowest  point  in  the  ciZlalfon 


flo 


BANKING  PRINCIPLES 


was  generally  reached  about  the  middle  of  the  year  in- 
stead of  in  January,  which  is  now  the  lowest  month. 
About  1889  evidences  of  a  change  began  to  ap- 
pear, until  by  1895  the  readjustment  was  completed, 
and  January  became  the  largest  redemption  month, 
the  circulation  then  reached  its  lowest  point,  and  it 
has  held  that  position  ever  since.  Such  a  radical 
change  must  mark  an  epoch-making  event  in  the  his- 
tory of  the  Dominion,  and  this  was  no  less  an  occasion 
than  the  opening  up  of  the  great  Northwest  and  the 
entering  of  Canada  into  the  arena  of  the  world's 
wheat  growers. 

Previous  to  1906  the  circulation  returns  in  the  gov- 
ernment statement  formed  a  very  reliable  barometer 
of  the  outstandmg  circulation  in  the  hands  of  the  pub- 
lic, but  in  1907  the  banks  began  to  realize  that  the 
moving  of  the  crops  and  the  opening  up  of  the  North- 
west was  beginning  to  test  the  efficiency  and  volume 
of  the  available  circulation.     A  number  of  the  banks 
increased  their  capital.     For  the  requirements  of  the 
average  circulation  this  would  have  sufficed  amply, 
but  it  was  impor      le  to  increase  capital  at  a  suf- 
ficiently rapid  rate  to  cover  the  "soaring  peak"  of  the 
October  and  November  demand  for  currency.     In 
1908  an  amendment  to  the  Bank  Act  was  passed  per- 
mitting banks  to  issue  emergency  currency  during  the 
crop-moving  months,  based  on  a  percentage  of  their 
combined   capital    and    reserve.     This,    tho    useful, 
proved  of  only  temporary  and  limited  advantage. 
Another  expedient  was  tried  by  the  government  in 


CIRCULATION  OF  CANADIAN  BANKS 
TtataB*  to  minonM.  Imported  In  the  Goy««B,at8Utom«ilUth. 
JSadotBMehiioatb.  "" 


1901-191B 

3aa. 

Feb. 

Mar. 

Apr. 

Uaj 

Juno 

July  Auu.  Sept. 

Oct 

Nor. 

Dec. 

1901 
1902 
1903 
1901 

45 

49 
55 

57 

46 

SO 
56 
58 

48 

58 
60 

47 
51 
56 

SO 

a 

51 
67 

68 

49 
64 

59 
60 

49 
58 
58 
60 

61 
65 

60 
60 

66 
61 
64 
64 

68 
66 

n 

78 

58 
66 
67 
09 

64 
61 
63 
65 

87 
78 
79 
80 

1906 
1906 
1907 
1906 

58 
61 
68 
67 

59 
62 
71 
69 

50 
66 
76 
60 

60 
67 
73 
67 

68 
64 
71 
68 

68 
69 
76 
68 

61 
68 
73 
67 

68 
70 

77 
70 

70 

n 

79 
76 

77 
84 
84 
83 

73 
81 
84 
80 

70 
78 
78 
73 

86 
86 

96 
06 

1909 
1910 
1911 
1912 

66 
73 

77 
88 

67 
75 

80 
89 

60 

78 
88 
96 

87 
70 
84 
05 

60 

77 
88 
94 

70 

80 

89 

108 

71 
81 
80 
96 

78 

81 

91 

102 

79 

87 

97 

101 

90 
96 
106 
111 

86 

90 

108 

116 

81 
88 

loe 

110 

97 

100 
lOB 
116   • 

1913 

96 

97 

loe 

98 

103 

106 

90 

106 

111 

118 

1 

119 

— 

118 

Difference  In  MlUlons  over  Previous  Month.  1901-1913 
Decrease  shown  thu8:-2  (minus  two) 


Jan. 

Feb. 

Mar. 

Apr. 

May 

June 

July 

Aus. 

Sept. 

Oct. 

Not.  Dec. 

J901 

1908 
1903 
1904 

—  6 

—  5 

—  0 

1 
I 
1 
1 

8 
8 
2 
8 

—  1 

—  1 
—8 

—  1 

-1 
0 

1 
-1 

3 
3 
2 
2 

0 
-2 
-1 

0 

8 
3 
2 

0 

6 
6 

4 
4 

8 
5 

7 
8 

0 

—  1 

—  4 
-8 

—4 
—4 

—  4 

—8 

1906 
1906 
1907 
1906 

—  7 

—  9 

—  10 
—11 

1 

1 
3 
8 

0 

4 
5 
0 

1 

1 
-3 
—  8 

—2 

—3 

-2 

1 

4 
6 
5 
0 

-1 

—  1 

—  3 
1 

1 

? 

3 

8 
7 
8 
6 

7 
7 
6 

7 

—4 

-3 

0 

—  8 

—3 
—3 
—6 

~7 

1909 
1910 
1911 
1918 

-7 
—  8 
-11 
-M 

1 
8 
3 
1 

8 
3 
8 
7 

—8 

1 

8 

—  1 

-8 
-8 
—  8 

-I 

I 
3 
7 
8 

1 

I 

0 

-0 

1 
0 
8 
6 

7 
6 
6 
2 

11 
9 
0 
7 

—4 

-6 

—  4 

6 

—6 
— f 

0 
—8 

1913 

-15 

8 

6 

—  4 

6 

3 

-7 

7 

6 

7 

1 

. 

FlOU::r  3 
til 


•  BANKING  PRINCIPLES 

permitting  banks  to  deposit  gold  with  the  Receiver- 
General  and  obtain  Dominion  notes  in  exchange. 
This  was  not  taken  advantage  of  to  any  great  extent, 
•s  it  was  found  to  be  not  only  slow  and  clumsy  in  oper- 
ation, but  lacked  the  essential  feature  of  elasticity. 
As  might  be  surmised,  during  the  past  few  years  the 
banks  have  frequently  found  themselves  uncomfort- 
ably near  the  limit  of  their  circulation,  and  at  these 
times  they  do  not  present  the  notes  of  other  banks  for 
redemption  in  the  usual  way,  but  retain  them  for  their 
own  use  over  the  counter.     For  instance,  in  June, 
1912,  the  banks  evidently  held  each  other's  notes  until 
the  June  demand  was  satisfied,  and  in  consequence 
the   July   redemption   was   abnormally    large.     In 
studying  the  circulation  returns  for  the  years  1908  to 
1912  these  peculiar  conditions,  and  the  expedients  re- 
sorted to  for  supplying  the  extra  circulation  required, 
must  be  taken  into  account. 

8.  Monthly  changes.— Figure  3  shows  the  differ- 
ence month  by  month,  six  months  of  redemption  and 
six  months  of  issue.  The  months  arrange  themselves 
naturally  into  three  groups,  as  follows: 

Months  of  Issue         Months  of  Redemption 
February.  April. 

March.  May. 


June. 


August. 


July. 


November   (4th  week). 


NOTE  ISSUES  00 

Months  of  Issue         Months  of  Redemption 
September.  December. 

^^*ob^r-  January. 

November    (3  weeks). 

The  circulation  year  commences  with  the  month  of 
February,  which  shows  a  slight  output  varying  in 
amomit  and  due  principally  to  the  requirements  of 
the  lumbermg  mdustry.     March  again  calls  for  an  in- 
creased  issue,  as  in  this  month  the  lumbering  camps  are 
paid  off,  and  only  sufficient  men  for  the  drives  are  re- 
tamed.     In  April  and  May  most  of  the  March  circu- 
lation  IS  redeemed,  as  the  lumbermen  return  from  the 
woods  and  pay  their  family  bills  for  the  winter  at  the 
viUage  stores,  or  otherwise  spend  their  winter's  pay 
June  especially  during  the  last  three  or  four  years, 
has  shown  a  very  considerable  rise  in  circulation;  then 
navigation  opens,  the  large  lumber  drives  are  com- 
pleted and  the  men  paid  off.     Payments  for  dairy 
products  mcrease  in  amount  and  general  activity  pre- 
vails thruout  the  country.     July  is  a  redemption 
month,  and  generally  shows  a  considerable  falling  off  • 
f  artories  are  closed  down  for  repairs  and  stock  taking,' 
and  the  steady  circulation  of  factory  pay-day  asserts 
Itself  by  Its  absence.     In  addition  to  this  the  summer 
exodus  to  the  seaside  and  to  Europe  begins  with 
the  consequent  purchase  of  traveling  funds.     August 
IS  the  first  of  the  three  great  months  of  issue.     But- 
ter, cheese,  and  hay,  with  vegetables  and  all  manner  of 
fruit  for  cannery  and  table  use,  call  largely  for  cur- 

A  VI — C6 


mmm 


Pi 


M 


BANKING  PRINCIPLES 


rency,  and  with  increased  momentum  join  forces  with 
the  cereals  in  September  and  October  until  the  highest 
point  of  the  circulation  is  reached,  usually  in  the  third 
week  of  November.  Toward  the  end  of  November 
the  steady  return  of  the  circulation  begins  and  con- 
tmues  all  thru  December  and  January. 

It  is,  of  course,  impossible  to  detail  all  the  influences 
which  affect  circulation,  but  the  above  covers  the  more 
important  points. 

A  late  winter  or  spring,  for  instance,  will,  of  course, 
affect  the  figures  for  the  spring  months  slightly,  and 
those  for  the  fall  may  be  influenced  by  the  lateness  of 
the  crops  or  by  the  holding  of  their  produce  by  the 
farmers  in  the  hope  of  better  prices,  but  these  changes 
are  all  adjusted  within  six  months,  the  year's  average 
is  not  affected,  and  the  fluctuations,  tho  delayed,  take 
place  as  usual. 

9.  Emergency  currency.— The  provision  for  a  spe- 
cial issue  during  the  crop-moving  period,  tho  limited 
m  operation,  was  found  sufficiently  useful  to  be  incor- 
porated in  the  Act  of  1913.    It  provides  that  during 
the  crop-moving  period,  from  the  first  of  September 
to  the  end  of  February,  banks  are  at  hberty  to  increase 
their  note  circulation  to  the  extent  of  15  per  cent  of  the 
combined  total  of  their  paid-up  capital  and  reserves. 
A  bank,  for  instance,  with  a  paid-up  capital  of  $10,- 
000,000  and  a  reserve  of  $5,000,000  would,  of  course, 
at  all  times  be  able  to  issue  notes  up  to  $10,000,000, 
but  during  the  period  from  September  1  to  February 
28  it  can  make  a  further  issue  of  15  per  cent  of 


'      "3 

I 


wl 

un 

est 

th< 

un 

ela 

ina 

sue 

int( 

bar 

ate] 

ord 

1 


NOTE  ISSUES  H 

$15,000,000,  namely,  $2,250,000,  excess,  or  a  total  of 
$12,250,000.  As  this  excess  issue  is  subject  to  a  gov- 
emment  tax  of  five  per  cent,  its  use  entails  a  loss  to 
the  bank,  and  consequently  it  is  used  only  when  abso- 
lutely necessary. 

In  August,  1914,  this  privilege  was  extended  thru- 
out  the  whole  year,  during  the  continuation  of  the  war 

10  Central  gold  reserves.-For  some  time  it  had 
been  telt  that  the  emergency  currency  and  other  ex- 
pedients were  only  tentative  measures,  and  that  in  the 
revision  of  the  Bank  Act  a  satisfactory  solution  of  the 
difficulty  would  be  found.  The  central  gold  reserve 
furnishes  a  solution  of  the  difficulty,  and  is  a  consistent 
amplification  of  the  note-issue  system,  which  has  so 
completely  met  the  requirements  of  the  country  dur- 
ing the  last  fifty  years. 

The   central   gold   reserve   is   an    ingenious   plan 
whereby  the  banks  are  enabled  to  is«ue  bills  to  an 

"".tIu  /'"''""*  "^^^^^^^  departing  from  the  well- 
estabhshed  principles  of  an  asset  currency  limited  to 
the  amount  of  paid-up  capital.     The  notes  issued 
under  this  plan  possess  all  the  desirable  features  of 
elasticity  and  convertibility  in  common  with  the  ord- 
inary issue.    As  a  matter  of  fact,  there  is  only  one  is- 
sue, and  the  central  gold  reserves  come  automatically 
into  operation  as  soon  as  the  circulation  issued  bv  a 
bank  exceeds  its  authorized  amount,  and  are  immedi- 
ately released  by  the  retirement  of  the  excess  in  the 
ordinary  course  of  redemption. 
The  machinery  is  simple.     Under  the  new  law  four 


60 


BANKING  PHINCIFLKS 


trustees  are  appointed-three  by  the  banks  and  one  by 
the  Minister  of  Finance-and  the  banks  are  empow- 
ered to  deposit  with  these  trustees  as  much  of  their 
gold  as  they  like.  This  deposit  is  called  the  central 
gold  reserves.  The  banks  are  then  permitted  to  is- 
sue against  the  reserves  their  notes,  dollar  for  dollar, 
as  and  when  required. 

Thus,  as  has  ah-eady  been  said,  a  bank  with  $10,- 
000,000  paid-up  capital,  $5,000,000  reserve,  and  $15  - 
000,000  of  gold  and  Dominion  notes  (which  are  rcaUy 
receipts  for  gold),  would  at  all  times  be  able  to  issue 
up  to  $10,000,000,  and  during  the  emergency  period 
(September  1  to  February  28)  would  be  enabled  to  in- 
crease  its   circulation   to   $12,250,000.     This   bank 
would  in  all  probability  deposit  with  the  central  gold 
reserves,  say,  $5,000,000  in  gold  or  Dominion  notes. 
It  would  then  be  at  liberty  to  allow  its  circulation  to 
run  up  to  $15,000,000  at  any  time,  or  to  $17,250,000 
dunng  the  emergency  period,  and  it  could  issue  a  still 
larger  amount  of  notes  by  making  a  further  deposit 
with  the  central  gold  reserves. 

Under  previous  acts,  Canadian  bank  notes  have 
proved  themselves  to  be  as  good  as  gold;  and  the  ex- 
cess circulation  protected  by  the  central  gold  reserves 
will  be  equally  as  good,  irrespective  of  amount.  The 
system  of  issue  and  redemption  thru  the  branches 
could  not  be  improved  upon.  A  note  issue  which  has 
absolute  security,  rapid  convertibility,  and  unlimited 
elasticity  must  surely  come  as  near  perfection  as  it  is 
possible  to  reach. 


NOTE  ISSUES 


67 


11.  Lost  and  destroyed  notes.— There  is  a  very  ex- 
aggerated idea  in  the  mind  of  the  public  as  to  the 
amount  of  notes  that  are  lost  or  destroyed,  and  never 
presented  to  the  banks  for  redemption. 

So  far  as  the  banks  themselves  are  concerned,  the 
amount  is  immaterial;  they  cannot  profit  by  it  in  any 
way,  except  in  so  far  as  the  notes  form  part  of  their 
general  outstanding  circulation.  In  case  of  the  fail- 
ure of  a  bank,  the  liquidator,  at  the  end  of  three  years, 
pays  to  the  government  an  amount  sufficient  to  re- 
deem all  outstanding  notes;  in  this  way  the  govern- 
ment eventuaUy  gets  the  benefit  of  any  notes  not  pre- 
sented for  redemption. 

Very  few  people  can  give  instances  within  their  per- 
sonal knowledge  of  notes  destroyed  beyond  recovery, 
either  by  fire  or  other  agencies.  When  such  accidents 
do  occur  the  banks  always  stand  prepared  to  consider 
a  refund  of  the  amount  lost,  provided  satisfactory  affi- 
davits and  bonds  are  submitted. 

No  bank  is  able  to  give  my  figures  as  to  the  amount 
of  destroyed  notes  represented  in  its  circulation;  not-s 
issued  forty  or  fifty  years  ago  are  stiU  being  pr^sfntcd 
for  payment. 

A  study  of  the  course  of  redemption  of  the  Sover- 
eign Bank  circulation  is  interesting.  This  bank  fai'c-^ 
at  the  beginning  of  1908  with  an  outstanding  circula- 
tion of  $1,988,585;  at  the  end  of  six  years  (January 
1.  1914)  there  remained  $23,520  unredeemed  or  only 
1.18  per  cent  of  the  amount  outstanding  on  January 
1.  1908.     On  January  1,  1917,  this  amount  had  been 


98 


BANKING  PRINCIPLES 


further  reduced  to  $15,270  or  .61  per  cent.  During 
1916  redemption  averaged  over  $100  monthly. 
The  outstanding  balance  consists  entirely  of  fives 
and  tens,  all  larger  denominations  having  been  re- 
deemed. 

12.  Branch  system. — Practically  every  country  in 
the  world  except  the  United  States  has  recognized  the 
utility,  if  not  the  absolute  necessity,  of  the  branch  sys- 
tem of  banking  in  handling  commodities  as  liquid  as 
money  or  credit.  A  bank  system  without  branches  is 
on  a  par  with  a  city  without  waterworks  or  a  country 
without  a  railroad  so  far  as  an  equable  distribution  of 
credit  is  concerned. 

In  October,  1916,  there  were  in  Canada  twenty-two 
banks,  with  bead  offices  situated  principally  m  Mont- 
real   and    loronto,    controUing   8,296   branches   of 
which  8,190  are  situated  in  Canada,  twenty-five  in 
Newfoundland  and  eighty-one  elsewhere,  chiefly  in 
the  West  Indies.     Some  of  these  banks  have  over 
three  hundred  branches  scattered  thruout  the  Do- 
minion, receiving  money  in  Vancouver  today  and 
lending  it  in  Halifax  to-morrow,  or  the  reverse;  and 
ceaselessly  working  to  remove  money  from  where  it 
is  least  needed  to  where  it  is  most  needed.     With  a 
branch  system  money  always  finds  its  own  level.     A 
merchant  in  the  West  pays  no  more  for  his  banking 
accommodation  than  his  confrere  of  equal  standing  in 
the  East.     The  immense  territory  covered  by  Canada 
alone  makes  branch  banking  an  absolute  necessity  for 
the  economic  and  efficient  distribution  of  loanable  cap- 


NOTE  ISSUES  gg 

it.l  and  banking  facilities.    Any  other  method  would 
DC  cumbersome  and  wasteful. 

Under  the  Bank  Act  banks  are  permitted  to  "open 
branches,  agencies,  and  offices."  No  restriction  is 
placed  by  the  government  on  the  number  or  situation 
of  the  branches  to  be  opened  by  any  bank,  and  to  this 
absence  of  red  tape  may  be  ascribed  in  great  measure 
the  successful  working  of  the  system  in  Canada. 

As  a  practical  illustration  of  the  work  accomplished 
by  the  branches  m  distributing  wealth,  let  us  take  two 
owns--it  IS  immaterial  whether  they  are  ten  miles  or 
three  thousand  miles  apart.     A  is  a  comparatively 
wealthy  town   with  a  population  composed  in  great 
part  of  retired  merchants  and  farmers,  with  practi- 
cally  no  industries  and  with  little  or  no  enterprise. 
Its  deposits  are  large  with  no  demand  or  outlet  for 
money  m  the  town.     B,  on  the  other  hand,  is  a  busy 
httle  manufacturmg  town  with  all  its  money  invested 
m  Its  constantly  increasing  industries,  and  the  branch 
here  receives  but  meager  deposits  to  meet  the  heavy 
demands  for  advances.     Now  this  is  where  the  branch 
system  steps  in  and  enables  the  B  branch  to  use  the 
surplus  funds  of  A,  thus  supplying  the  legitimate  re- 
quirements of  B's  customers,  to  the  profit  of  the  bank 
and  the  benefit  of  the  town.     When  it  is  remembered 
that  this  principle  is  working  every  day  in  hundreds 
of  branches  thruout  Canada  in  towns  and  villages 
ten,  one  hundred  or  one  thousand  miles  apart,  and 
yet  just  as  intimately  interdependent  of  each  other  as 
m  the  above  mstance.  the  benefit  and  economy  of  the 


MICROCOI^   RESOLUTION  T6ST  CHART 

(ANSI  and  ISO  TEST  CHART  No.  2) 


Ho 


12.      1^ 
2.2 


us 

IS 


1^ 

1*0 


2.0 


1.8 


^    >IPPLIED  IM^GE    Ir 


1653   Cost   Main    Street 

Rochester.   Ne«  York        U609       USA 

(716)   482  -  0300  -  Phone 

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70 


BANKING  PRINCIPLES 


branch  system  will  be  realized.  From  this  it  will  be 
seen  that  no  matter  how  small  the  deposits  are  in  a 
branch,  its  loanable  funds  are  limited  only  by  the 
available  resources  of  the  bank  of  which  it  forms  an 
integral  part.  A  branch  till  is  like  the  widow's  cruse 
of  oil;  it  can  never  be  emptied  nor  yet,  on  the  other 
hand,  can  it  be  made  to  overflow. 

A  consideration  of  the  great  area  over  which  the 
branches  of  Canada  are  spread  and  the  variety  of  in- 
terests to  which  they  minister,  impresses  one  with  the 
fact  that  Canadian  banks  are  not  local  in  character, 
and  that  their  interest  and  their  activity  are  not 
bounded  by  the  confines  of  any  one  town  or  province, 
or  even  by  the  Dominion  itself. 

13.  Branch  system  and  circulation. — The  branch 
system  and  the  note  issues  are  the  two  principal  fac- 
tors which  have  enabled  the  banks  to  assist  so  ma- 
terially in  the  expansion  and  upbuilding  of  Canada. 
They  are  so  closely  connected  and  interdependent 
that  it  is  necessary  to  consider  them  together.  With- 
out branches  the  circulation  would  lack  in  a  great 
measure  the  elasticity  of  issue  and  redemption  which 
is  its  most  useful  and  characteristic  feature.  With- 
out the  circulation  privilege  it  would  be  impossible  for 
the  banks  to  open  branches  in  new  and  sparsely  popu- 
lated districts. 

It  is  well  known  that  the  average  branch  is  run  at 
a  loss  for  the  first  three  or  four  years,  and  bearing 
this  in  mind  a  consideration  of  the  large  number  of 
branches  opened  yearly  by  the  banks,  must  lead  to 


NOTE  ISSUES  71 

the  conclusion  that  many  banks  are  devoting  at  least 
the  whole  of  their  profits  on  circulation  to  the  opening 
of  branches  and  the  development  of  new  districts 
An  average  of  three  or  four  new  branches  opened 
yearly  might  easily  absorb  the  profit  on  $1,000  000 
circulation,  especially  in  the  West,  where  the  initial 
and  the  operating  expenses  are  high. 

With  the  exception  of  Scotland,  where  branch 
banking  has  been  brought  to  a  great  degree  of  per- 
fection, Canada  shows  a  larger  number  of  branches 
in  proportion  to  population  than  any  other  country 
m  the  world,  as  the  following  figures  will  show: 

At  End  of  19 IZ 
Scotland     one  bank  to  every  2,106  people 

rf  °f  J  ^.'  "; °"^  ^*°^  *°  ^""""^y  2.847  people 

United  Kingdom.  .  .one  bank  to  every  5,116  people 

S"€  J  1 °"^  ^^^'^  *°  ^very  5,422  people 

United  States    one  bank  to  every  3,407  people 

As  regards  cities,  Bristol,  England,  for  example, 
has  one  bank  for  every  5,674  people,  while  Toronto, 
a  city  of  similar  size,  has  one  bank  for  every  2,354 
people.    Cincinnati,  in  the  United  States,  has  one 
bank  to  every  9,120  people.     Taking  Canadian  cities 
as  a  whole,  there  is  one  bank  to  every  8,100  people, 
while  the  United  States  can  show  only  one  bank  for 
9,700.     It  wiU  be  seen  from  this  that  Canadian  banks 
have  given  a  good  account  of  their  stewardship  so  far 
as  supplying  banking  facilities  to  the  countrj-  is  con- 
cerned.   Without  asset  currency,  however,  such  ex- 
pansion would  have  been  impossible. 


Tt 


BANKING  PRINCIPLES 


:  t: 


14.  Branch  system  and  the  borrower. — The  eco- 
nomical and  equable  distribution  of  loanable  funds 
made  possible  by  the  branch  system  has  ab-eady  been 
referred  to.    The  control  of  these  funds  and  the  abil- 
ity to  direct  them  to  different  parts  of  the  country, 
according  to  the  demands  of  trade  and  agriculture,' 
has  enabled  the  banks  to  accomplish  astonishing  re- 
sults with  the  means  at  their  disposal.     The  banks,  as 
a  whole,  form  a  vasi  clearing  house  not  only  between 
the  depositor  and  the  borrower,  but  also  between  bor- 
rower and  borrower.     A  httle  consideration  shows 
that  the  latter  is  an  important  factor  in  the  financial 
life  of  a  country  so  extensive  as  Canada.     The  banks 
are  continually  lending  to  Peter  to  pay  Paul,  altho 
these  two  gentlemen  may  be  quite  unconscious  of  the 
relation  and  have  probably  never  even  heard  of  each 
other. 

There  is  practically  little  or  no  fluctuation  in  the 
total  amount  of  commercial  loans,  only  a  steady  in- 
crease due  to  the  growth  of  the  com  try,  the  demand 
for  the  loanable  capital  at  the  disposal  of  the  banks 
generally  being  in  excess  of  the  supply.  In  the  gov- 
ernment statement  of  July,  1918,  commercial  loans 
were  reported  at  a  trifle  under  $902,000,000,  as 
against  $899,000,000  in  the  preceding  month  and 
$852,000,000  in  July,  1912,  yet  in  the  face  of  this 
constant  increase,  banks  are  accused  of  restricting 
their  loans  unduly.  It  is  true  they  restrict  unwise 
expansion  in  times  of  financial  stress,  and  are  always 
foresighted  in  preparing  the  country  for  troublesome 


NOTE  ISSUES  73 

times  but  this  action  is  of  inestimable  benefit  to  the 
country     Even  under  the  serious  conditions  wh  ch 
prevailed  m  1893,  1907,  and  1913,  regular  custodiers 
were  not  restricted  in  the  use  of  their  tuthor'fdhnes 
ot  credit  or  reasonable  renewals  thereof.     The  banks 
did  refuse  to  make  advances  for  projects  outside  or- 
dinary  business  requirements,  such,  for  instance,  as 
an  unusually  heavy  purchase  of  raw  material,  not 
for   he  immediate  needs  of  the  business,  but  simply 
available  at  a  bargain.     New  accounts  at  such  a  time 
are  not  encouraged,  and  all  ventures  other  than  those 
devoted  to  the  creation  and  distribution  of  products 
are  consistently  refused  assistance. 

A  study  of  the  bank  returns  for  the  period  referred 
to  will  show  how  the  banks  use  every  means  to  meet 
the  needs  of  their  regular  customers.     In  1893,  for  in- 
stance, current  loans  increased  by  over  $11,000,000 
between  January  Pnd  June  with  an  increase  of  barely 
$1,000,000  in  deposits.     The  banks  felt  that  thev 
were  under  a  moral  obligation  to  take  care  of  their 
customers  to  the  extent  of  their  current  hnes  of  credit 
and  provided  these  funds  by  reducing  their  foreign' 
balances  just  at  the  time  when  they  could  have  been 
used  at  a  profit,  ,et  the  Canadian  customers  were 
asked  to  pay  no  more  than  the  usual  rate  of  six  or 
seven  per  cent.* 

The  slow  and  apparently  placid  increase  of  the 
loans  as  shown  by  the  monthly  statements,  is  deeep- 
tive,  for  beneath  the  surface  lies  a  seething  mass  of 

»  See  caU  loans  in  New  York,  page  103. 


■^^■1 

;-«^ 

iiM^^^H 

U 

m 

i'ifl^^^^^H 

-i 

'Ji^^^^H 

■  f. 

'^^^^H 

'- 

i^H 

■\ 

In^^^B 

74 


BANKING  PRINCIPLES 


acti^^ity,  inextricably  interwoven.  The  continued  ex- 
istence of  each  kind  of  advance  depends  in  great 
measure  on  the  constant  mol  ty  of  every  other.  Re- 
payments of  advances  made  oy  one  class  of  mdustry 
are  received  in  time  to  be  lent  to  an  entirely  differ- 
ent business,  possibly  at  the  other  end  of  the  country, 
and  so  on.  If  lumber  becomes  unsalable  from  over- 
production or  other  causes,  the  advances  made  for 
lumbering  operations  would  not  be  liquidated  in  sea- 
son, and  the  banks  might  find  it  difficult  to  satisfy 
uie  requirements  of  other  industries,  which  generally 
make  use  of  these  funds  a?  they  are  returned. 

Ihis  will  indicate  how  necessary  it  is  for  the  banks 
to  observe  at  all  tiroes  one  of  the  most  important  rules 
of  sound  banking,  namely,  that  every  loan  made  by  a 
bank  should  rest  on  a  foundation  of  salable  merchan- 
dise or  collectible  debts.  It  is  for  this  reason  that 
loans  on  real  estate  have  no  place  on  the  books  of  a 
comniercial  bank,  whose  profit  and  existence  are  de- 
pendent on  the  frequency  of  this  "turn  over,"  and  the 
keen  interest  which  bankers  take  in  preventing  over- 
production in  any  line  is  thus  justified.  The  average 
customer  gauges  his  output  from  local  or  provincial 
experience,  the  banker  from  a  national  and  interna- 
tional standpoint. 

A  concrete  example  may  be  of  value  in  illustrating 
the  circulation  of  credit  attained  thru  the  branch  sys- 
tem. Take,  for  instance,  a  western  farmer  who  bor- 
rows money  from  a  bank  in  the  beginning  of  the  year 
in  order  to  pay  for  seed  and  labor,  rmd  about  the  same 


NOTE  ISSUES 


7« 


time  becomes  indebted  to  the  local  store  for  supplies 
and  the  like.     When  he  harvests  his  crop,  in  the  or- 
dmaiy  com-se  he  seUs  it  to  a  grain  buyer,  who  pays 
hmi  by  a  check  or  order  on  the  bank.     This  money  is 
used  by  the  farmer  to  discharge  his  debt  to  the  bank 
and  to  the  store;  the  balance,  if  he  is  a  thrifty  man, 
he   deposits.     The   storekeeper  remits   his   receipts 
^om  such  payments  to  the  wholesale  houses  in  the 
East,  and  the  wholesaler  liquidates  his  indebtedness 
to  his  bank  or  to  the  manufacturer;  the  latter  in 
turn  pays  his  bank  and  buys  more  raw  material.    This 
IS  an  mstance  of  only  one  class  of  loan,  but  it  will  give 
some  idea  of  the  fluidity  and  interchangeability  of 
credit  which  is  possible  thru  the  branch  system.     It 
might  further  be  pointed  out  that  the  aggregate  liqui- 
dation  of  loans  by  the  farmers  and  correlative  debtors 
enables  the  banks  to  finance  the  crops  by  making  ad- 
vances against  warehouse  receipts,  etc.,  which  are  ul- 
timately  liquidated  by  drafts  with  bills  of  lading  at- 
tached.    This  financial  operation  provides  the  basis 
for  foreign  exchange  with  which  to  pay  for  the  raw 
materia   and  other  imports  of  the  manufacturer  and 
wholesaler.     It  is  impossible  fully  to  appreciate  the 
far-reaching  efl'ect  of  even  this  simple  paj^nent  of  a 
farmers  debt.     The  discharge  in  any  part  of  Can- 
ada of  a  debt  of  no  matter  what  nature  or  size,  is  likely 
to  be  equally  dynamic  in  its  influence  on  the  huge  tho 
sensitive  volume  of  loans. 

15.  Establishing  a  line  of  credit— There  are  cer- 
tam  conditions  covering  the  relation  of  Canadian 


76 


BANKING  PRINCIPLES 


banks  with  their  borrowers  which  are  invariably  ob- 
served. One  is,  that  no  man  can  be  a  borrower  from 
more  than  one  bank,  and  it  is  only  in  the  case  of  a 
very  large  account  that  this  rule  is  broken,  and  then 
only  by  mutual  agreement  between  the  banks  inter- 
ested. The  advantage  of  this  "one  bank"  pohcy  is 
obvious.  The  customer  benefits  from  the  fact  that 
in  being  loyal  to  one  bank  he  can  rely  upon  the  sup- 
port of  that  bank  at  all  times.  The  bank  is  also 
thoroly  in  touch  with  his  position  and  prospects,  and 
is  often  able  to  give  valuable  advice.  Another  con- 
dition a  Canadian  bank  ii^sists  on  is,  that  a  full  state- 
ment of  a  customer's  affairs  should  be  submitted  to  it 
each  year,  and  that  as  far  as  possible  loans  should  be 
cleaned  up  at  least  once  a  year. 

On  the  fulfilment  of  these  conditions  the  bank  on 
its  part  grants  a  customer  what  is  called  a  line  of 
credit,  based  on  his  estimated  requirements,  which  is 
generally  for  a  period  of  one  year,  during  which  time 
the  customer  is  able  to  use  as  much  or  as  little  of  the 
authorized  credit  as  his  business  requires;  providing, 
however,  that  he  does  not  exceed  the  limit.  A  cus- 
tomer of  a  Canadian  bank  of  good  standing  has  there- 
fore very  little  to  worry  about  during  the  currency 
of  his  line  of  credit.  He  is  not  called  upon  to  pay  in- 
terest on  more  money  than  he  is  actually  using,  and 
he  is,  moreover,  assured  of  the  support  of  the  bank  in 
the  operation  of  his  legitimate  business,  no  matter 
what  the  financial  conditions  may  be. 

The  position  of  a  bank  customer  in  the  United 


NOTE  ISSUES  77 

States  is  very  different  and  not  always  so  comforta- 
ble.    National  banks  are  restricted  by  law  in  the 
amount  of  loans  they  may  make  to  any  one  firm  or 
corporation,  and  large  concerns  are  forced  to  seek 
loans  aU  over  the  comitry.    This  practice  is  not  to 
the  advantage  of  the  borrower;  he  is  dependent  on 
note  brokers  to  dispose  of  his  paper  to  various  pur- 
chasers thruout  the  United  States,  to  whom  he  is 
personally  unknown.     The  paper  must  be  met  at  ma- 
turity  without  fail.     True,  provision  could  be  made 
by  selling  more  paper,  but  if  money  is  at  all  scarce 
even  this  resource  is  not  available  and.  in  consequence, 
solvent  firms  are  often  forced  to  the  wall.     The  po- 
sition is  an  unfortunate  one  for  the  borrower,  not 
only  because  his  finances  are  always  in  a  state  of  un- 
certamty,  but  because  the  practice  has  a  tendency 
to  encourage  over-borrowing  in  times  of  easy  monev, 
^th  consequent   over-expansion.     This   evil   is  un- 
likely to  happen  to  a  man  who  has  only  one  bank  to 
deal  with,  as  no  trained  banker  would  allow  a  cus- 
tomer to  obtain  more  money  from  the  bank  than  his 
business  conditions  warranted.     A  brake  is  just  as 
necessary  in  business  life  for  averting  disaster,  as  it  is 
m  th«  mechanical  world. 

TLis  method  of  financing  naturally  restricts  the 
manufacturer  and  wholesale  merchant  to  the  making 
of  one  class  of  paper,  their  own  single  name  notes! 
and  consequently  comparatively  few  settlements  with 
their  customers  are  affected  by  means  of  notes  or 
drafts,  the  amounts  due  being  carried  in  open  account 


78 


BANKING  PRINCIPLES 


until  the  customer  remits  according  to  the  terms  of 
the  sale. 

In  Canada,  however,  open  accounts  are  the  excep- 
tion, and  practically  every  sale  of  goods  is  subject  to 
settlement  by  draft  or  note.  These  notes  and  drafts 
are  known  as  trade  bills  and  are  discounted  freely  by 
a  bank  and  collected  thri  its  various  branches,  the 
proceeds  being  applied  in  reduction  of  the  customer's 
loans. 

The  Canadian  borrower  has  therefore  two  methods 
of  borrowing,  loans  and  trade  paper.  Loans  are 
made  with  or  without  security  ^or  the  purpose  of  cre- 
ating or  purchasing  goods.  The  goods  when  made 
or  acquired  are  exchanged  for  cash,  notes  or  the  right 
to  draw  on  the  purchaser;  the  two  latter  are  known  as 
trade  bills  and,  when  discounted  by  a  reputable  firm, 
form  the  highest  class  of  security  a  bank  can  have. 

The  discounting  of  trade  paper  is  of  benefit  both 
to  the  bank  and  to  the  borrower.  The  latter  changes 
a  direct  loan  into  an  indirect  or  contingent  liability, 
and  is  assured  of  the  effective  and  prompt  collection 
of  the  debt.  The  bank  receives  tangible  evidence  that 
its  loan  has  been  devoted  to  thj  production  of  goods, 
and  that  the  goods  have  been  disposed  of  to  responsi- 
ble merchants;  furthermore,  its  position  is  strength- 
ened by  a  second  name  and  a  definite  date  of  pay- 
ment. 

16.  Branches  and  panics. — It  is  apparent  that  the 
branch  system  not  only  gathers  up  money  thruout 
the  country,  but  distributes  and  varies  the  risk  of  the 


NOTE  ISSUES 


79 


»^ank  s  investments.     It  does  more  than  this,  it  dis- 
ies  the  risV  of  the  deposits  which,  at  times,  is  a 
y  real  risk.    A  run  on  a  solvent  bank  is  always 
more  or  less  local  in  character  an  1,  tho  quite  capable 
of  wreckmg  an  individual  bank,  would  not  seriously 
affect  the  standing  of  a  branch  oanking  system.    Not 
only  would  the  head  office  b .  able  to  send  ample  funds 
to  pay  off  every  deposit  if  necessary,  but  the  branch 
Itself  would  be  m  a  position  to  allay  the  run  by  its 
abihty  to  pay  out  its  own  notes;  these  would  be 
taken  readily  by  the  depositors  and.  as  a  rule,  assist- 
ance from  the  head  oftice  would  not  be  required. 
Nothing  will  stop  a  run  of  this  kind  quicker  than  an 
apparent  willingness  and  ability  to  meet  all  demands. 
if  requently,  in  such  cases,  the  majority  of  the  de- 
posits are  returned  to  the  bank  if  it  is  wiUing  to  take 
them.    Depositors  who  can  be  stampeded  in  this 
manner  by  a  chance  word  or  rumor  are  not  desirable, 
EL    the  refusal  to  reopen  a  few  of  these  accounts  has 
a  very  salutary  effect  on  a  community.     So  unrea- 
sonable are  panics  of  this  nature  that  people  have 
been  known  to  withdraw  mon.y  from  a  small  city 
branch  and  deposit  it  in  the  main  office  of  the  same 
bank  further  down  the  street,  but  occupying  a  more 
pretentious  building.     Such  panics  as  these  are  dis- 
agreeable, but  do  not  seriousl:    affect  a  bank  as  a 
whole,  and  fortunately  they  seldom  happen. 

Even  a  serious  loss  by  way  of  a  bad  loan  would  not 
affect  the  security  of  a  branch  depositor;  no  matter 
how  small  the  branch,  the  depositor  shares  in  thv^  gen- 

XVI— C7  * 


80 


BANKING  PRINCIPLES 


eral  security  of  the  assets  of  the  whole  bank.  The 
failure  of  a  large  customer  might  easily  force  a  purely 
local  bank  to  close  its  doors,  but  under  the  branch 
system  the  loss  would  be  spread  over  the  earnings  of 
the  whole  system. 

Altho  the  keenest  competition  exists  among  the 
banks  in  obtaining  business  at  their  various  branches, 
and  little  or  no  intercourse  occurs  between  the  gen- 
eral managers  m  ordinary  times,  they  are,  as  trained 
bankers,  naturally  in  accord  in  interpreting  the  first 
signs  of  trouble  on  the  financial  horizon,  and  either 
in  their  several  annual  addresses  or  thru  the  press 
warn  the  public  to  retrench  and  prepare  for  the  storm. 
All  the  annual  reports  of  the  banks  issued  at  the  end 
of  1906  and  beginning  of  1907  contained,  in  the  ad- 
dresses of  the  several  general  managers,  serious  warn- 
ings of  troublesome  times  ahead,  which  unhappily 
materialized  in  October,  1907.  Banks  made  them- 
selves very  unpopular  in  the  early  part  of  1907  by 
their  insistence  on  retrenchment  in  all  lines  ^i  busi- 
ness activity,  but  their  wisdom  was  fully  justified  by 
the  result — Canada  rode  thru  the  storm  inconven- 
ienced but  unscathed. 

Should  a  sudden  emergency  ever  arise  a  few  hours 
would  suffice  to  bring  the  general  managers  of  the 
twenty-five  banks  to  Montreal  or  Toronto.  Their 
united  counsel  and  experience  would  go  far  to  ward 
off  the  anticipated  trouble.  In  a  few  hours,  if  nec- 
essary, every  branch  in  Canada  from  Dawson  City 
to  Halifax  would  act  in  unison.    With  a  system  ca- 


NOTE  ISSUES  gj 

pable  of  such  control  a  general  crisis  or  panic  would  be 
aliiiost  impossible. 

Consider,  too,  the  personnel  of  the  general  mana- 
gers who  are  men  trained  from  their  youth  up  '■>  thet 
profession,  as  only  the  branch  system  can  train.     In 

out  Canada,  they  became  thoroly  versed  i    local  cus- 
toms and  enviromnents.  and  i„  .nany  cases  they 
^med  experience  m  foreign  branches  in  England 
the  Umted  States,  and  elsewhe    .    As  accoufS 

broad  knowledge  of  national  trade  and  finance  ^il! 
as  general  managers,  they  are  found  not  only  direct 
mg  the  administration  of  their  nmnerous  brar^^h 

conditions  received  from  the  branches,  scattered  thru- 
out  he  length  and  breadth  of  Canada.  Ther*  Z 
few  things  connected  with  the  life  of  Canada  that  a 
^er  can  afford  to  leave  unstudied.    The  weekly 

aTf  Zr"!''"'"  '"""'"^  '™'"  'he  branch  man^ 
agers  deal  with  every  variety  of  subject,  from  the 

tiZT!^'r  ^  "  ^""^  """'  °f  *«  ««"«™I  condi- 
tions of  Canada  as  a  whole  than  anyone  else.  It  has 
been  said  that  the  files  of  one  of  the  larger  banks 

TtTZ^  ^'"""^  """^  "'''="-*«  '""-^^'on  than 
can  be  found  m  any  newspaper  office 

17.  General  revkv,.-A  study  of  the  Canadian 
^nkmg  system  along  the  above  lines  will  demo^ 
strate  clearly  why  it  has  been  accorded  such  a  hi^ 


BANKING  PRINCIPLES 


m- 


place  among  the  banking  systems  of  the  world,  not 
only  on  account  of  the  equable  distribution  of  loan- 
able funds  thru  the  branch  system,  but  also  on  account 
of  the  absolute  safety  of  the  note  issue  and  its  elastic- 
ity in  meeting  every  need  of  national  life  and  com- 
merce. The  uniform  reciprocal  payment  of  each 
other's  notes  at  par  by  the  banks  all  over  the  Domin- 
ion, followed  by  prompt  redemption,  renders  forced 
and  unhealthy  inflation  an  impossibility,  while  the 
automatic  expansion  of  the  circulation  whenever  re- 
quired or  called  for  by  the  exigencies  of  conmierce 
and  agriculture  renders  it  peculiarly  adapted  to  the 
needs  of  a  young  and  growing  country  like  Canada. 

Dr.  Joseph  French  Johnson  sums  up  the  main  ad- 
vantages of  the  Canadian  system  of  branch  banking 
as  follows: 

1.  Large  capital  behind  each  institution.  No  matter  how 
small  the  branch  the  customers  share  in  the  security  which  a 
large  capital  offers. 

2.  Unity  of  policy  on  the  part  of  the  leading  banks  dur- 
ing a  stringency,  in  contrast  to  the  playing  at  cross  pur- 
poses which,  in  the  panic  of  1893,  distinguished  the  action  of 
the  national  banks  in  the  central  reserve  cities  of  the  United 
States  against  the  smaller  country  banks.  In  1907,  if  the 
country  banks  had  been  branches  of  the  large  city  banks, 
they  would  not  have  withdrawn  funds  from  those  banks  when 
they  were  so  badly  needed,  and  the  crisis  would  not  have  been 
so  severe. 

3.  Power  to  equip  every  branch  with  ample  reserves  for 
maintaining  commercial  credit  by  means  of  note  issues.  It 
is  impossible  in  Canada  for  the  business  needs  of  any  com- 
munity, no  matter  how  remote,  to  outstrip  the  banking  facili- 
ties, as  is  often  the  case  with  us.    The  resources  of  the 


NOTE  ISSUES  83 

branch  bank  are  quickly  and  indefinitely  extended.     More- 
over, when  the  need  for  additional  facilities  has  passed   th^ 

t'o  anyon^'  ^'^  ''''  ^^"  ^°^*'*^*  ^"°'^-«^^  ^t^o^t  loss' 
4.  Uniformity  of  interest  rates  thruout  the  whole  coun- 

t^ee^iJ^e  larr*;'^'^.  T^  *'^"  °"^  °'  *-  per  cent  bl 
tween  the  large  cities  in  the  east  and  the  newer  towns  and 

rapidly  expanding  cities  of  the  west.     In  the  absence  of  com 

petition  the  necessity  of  depending  upon  small  local  banks 

for  accommodation   requires   the  business  men  of  western 

irof  ;:piL\''"*"'  '***^^  *«  ^^^  "°"°p°^^  -^-  "^  th: 

banking  The  boards  of  directors  of  the  lar«  banks  are 
responsible  for  all  the  branches  and  they  are  therefore  forc^ 
to  put  into  practice  a  method  of  examination  and  supe^ 

=ntt  UnT^d^rr"-^^-  ''-  ^vernmentrm^ 

nrofif^^fK^K    ^*"   ^^  maintained  in  localities  where  the 

TseparLe  ban^TK  ""."^^  "°.*  '""''^^  '^'  establishment  of 
Ly^uv  u  ?^  '^\*^  independent  capital.     The  city  banks 

18.  Canadian  banking  system  under  war  condi- 
fm..-Since  the  outbreak  of  the  war  in  August,  1914, 
tiie  branch  system  of  banking  combined  with  an  asse 
currency  gave  another  proof  of  its  value  for  the 
equable  and  economic  distribution  of  loanable  funds 

li^K  ?  T^  *'"*'  ""^""  ^^^^^^«  conditions,  and 
with  the  least  possible  disturbance  of  business  or  dis- 
placement of  reserves. 

Elasticity  and  adaptability  to  new  conditions  have 
always  been  among  the  chief  characteristics  of  the  Ca- 


84 


3ANKING  PRINCIPLES 


nadian  banking  system  and  these  qualifications  could 
be  subjected  to  no  more  severe  test  than  when  Can- 
ada, as  a  belligerent  nation  found  herself  confronted 
by  the  complicated  and  innumerable  problems  raised 
by  war  conditions.  The  majority  of  these  problems 
at  the  outset  of  the  war  were  of  a  financial  and  fidu- 
ciary nature  and  the  government  naturally  looked  to 
the  banks  for  assistance  and  advice.  The  latter  were 
equal  to  the  occasion  and  exhibited  a  reserve  of  power 
and  a  capacit'^  for  overcoming  these  new  and  trying 
conditions,  from  their  ordinary  resources;  with  little 
or  no  recourse  to  the  remedial  measures  passed  by  the 
government. 

Altho  no  moratorium  was  declared  in  Canada,  the 
Dominion  Government,  more  as  a  matter  of  prepar- 
edness than  of  necessity,  made  bank  notes  equivalent 
to  gold  or  legal  tender,  extended  the  emergency  cur- 
rency privilege  thru  the  whole  year  (instead  of  the 
usual  period,  September  first  to  February  twenty- 
eighth)  and  made  provision  whereby  the  banks  could 
borrow  from  the  government  against  the  deposit  of 
approved  securities  or  commercial  paper.     As  stated 
above,  however,  the  banks  did  not  find  it  necessary  to 
use  any  of  these  privileges,  whose  real  value  rested  in 
their  moral  effect,  in  the  assurance  to  the  public  and 
to  the  banks  that  a  provision  had  been  made,  so  far  as 
lay  in  the  power  of  government,  to  enable  business  to 
go  on  as  usual. 

Jt  was  fortunate  for  Canada,  that  for  some  time 
prior  to  the  war,  the  banks  had  been  advising  re- 


NOTE  ISSUES  gg 

trenchment  in  expenditure  and  discouraging  any  ten- 
dency  on  the  part  of  their  customers  tf  oferejpa!^ 
or  overproduce.  The  outbreak  of  war,  therefore 
found  bank  loans  in  process  of  satisfactor^  reduction 
and  no  untoward  pressure  on  the  part  of  the  Cks 
was  necessan^  to  continue  the  healthy  liquidation  then 
m  process  the  public  being  more  than  ever  aware  o? 

Srr%      "'"1°? '"  ''"•"''  '""*  retrenchme: 

1916  ""'  ^'  ^^^*'  «°'J  O'^o^'^  31. 

For  the  year  preceding  the  war,  Canada  had  an 
advei^e  mtemational  trade  balance  of  nearly  $300," 
000,000      In   four  years   this  had   changed   to   a 
favorable  balance  which  for  1918  reached  approxi! 
mately  $170,000,000.    During  a  large  part  of  m9 
Canada  occupied  the  peculiar  position  of  having  a  fa- 
vorable trade  balance  and  yet  being  compelled  To  pay 
heavy  rates  of  exchange  in  the  United  States.    The 
figures  for  the  month  of  March  1919  illustrate  how 
this  came  about.    The  total  favorable  balance  for  the 
month  was  about  $7,827,258.    Goods  to  the  value  of 
¥5,891  661  were  miported  from  the  Umted  Kingdom 
whUe  Canada  exported  $83,078,664  as  an  offset  to 
this  amomit.    From  the  United  States  Canada  re- 
ceived $56,445,765  in  value  but  the  exports  totaled 
only  $3^086,020.    For  this  reason  sterling  exchan!« 
continued  to  be  quoted  at  a  substantial  discount  whHe 
Canada  paid  a  premium  on  New  York  Exchange 
Which  at  one  time  reached  5  3/1 6  per  cent. 


86  BANKING  PRINCIPLES 

The  last  three  years  of  the  war  period  brought 
about  a  remarkable  expansion  of  foreign  trade.  In 
1914  the  total  was  $1,073,894,368,  while  in  1918  this 
was  more  than  doubled,  the  total  reaching  $2,548,713,- 
538.  Of  course  much  of  the  increase  of  this  period 
consisted  of  munitions  of  war  yet  it  is  noteworthy  that 
the  volume  of  exports  continued  at  a  gratifyingly 
high  figure  after  the  return  to  peace  conditions. 

Since  1916  Canada  has  practically  ceased  to  depend 
upon  foreign  loans.  Not  only  has  she  financed  her 
own  heavy  war  expenditures  and  placed  large  sums 
at  the  disposal  of  the  mother  country,  but  she  has  also 
carried  thru  the  larger  part  of  the  great  reconstruction 
charges  without  recourse  to  large  foreign  borrowings. 

Concurrent  with  the  growth  of  this  self-sustaining 
abiUty  came  a  remarkable  change  in  bank  deposits. 
Intensified  extractive  industries  and  busy  factories 
produced  a  steady  increase  in  bank  deposits.  The 
following  statement  shows  the  position  of  the  banks  as 
a  whole  for  the  month  of  June  1919: 

Liabilities: 

Notes  in  Circulation $217,608,195 

Bal.  due  Dom.  &  Prov.  Govts,  (ad- 
vanced credits  and  pay  lists  de- 
ducted)         153,344,656 

Deposits  payable  on  demand  in  Canada      605,927,027 

Deposits  payable  after  notice  or  on 

fixed  date 1,139,569,570 

Deposits  elsewhere  than  in  Canada. .      240,201,440 


NOTE  ISSUES  ^ 

Due  to  other  banks  (Canada,  U.  K., 

U.  S.,  etc.) .    50,723,996 

Hills  payable,  Acceptances  under  let- 
ters of  credit  and  Sundry  liabilities       32,129,129 

'^°*^^    $2,439,504,013 

Assets: 

Current  gold  and  subsidiary  coin. . . .      $79,279  438 

Dominion  Notes 175,547.837 

Ueposit  for  security  of  notes 5,930,608 

Deposit  in  Central  Gold  Reserves. . . .      107,200,000 
Due    from    other    banks    (Including 
notes  and  checks,  for  Can.,  U.  K., 

U.  S.,  etc.) 203,283,857 

5>ecurities  and  Provincial,  Municipal, 

call  and  current  loans 2,033,421,633 

Overdue  debts 4,210,539 

Real  Estate  and  Mortgages  (acquired 

in  course  of  business) 8^565  qji 

Bank  Premises  (less  accounts  written 

T  °f|.;.-    •; 54,315,064 

i^iabilities  of  customers  under  letters 

of  credit 23,811,175 

sundry  assets  not  included  above 1,998,595 

'^^^^^ $2,697,564,417 

The  principal  increase  is  found  in  the  deposits 
which  grew  from  slightly  over  a  thousand  millions  in 
1914  to  considerably  more  than  seventeen  hundred 
millions  within  six  months  after  the  armistice  was 


88 


BANKING  PRINCIPLES 


signed.    In  this  connection  the  disproportionate  in- 
creases in  demand  deposits  and  time  deposits  may  well 
be  noted.    The  first  grew  by  a  sum  slightly  over  250 
millions,  while  the  latter  increased  over  480  millions. 
This  increase  in  savings  deposits  is  most  gratifying, 
and  would  be  more  so  if  it  were  entirely  the  result  of 
thrift  on  the  part  of  small  depositors;  part  of  it,  how- 
ever, represents  the  cash  surplus  of  manufacturers  and 
large   corporations   whose    prosperity   during   that 
period  converted  them  from  bank  borrowers  to  bank 
depositors. 

During  1916,  1917  and  1918  the  Canadian  banks 
arranged  credits  to  the  British  Government  to  the  ex- 
tent of  over  165  millions  of  dollars.  It  becomes  ap- 
parent from  a  ^.udy  of  the  statements  given  in  the 
foregoing  paragraphs  that  the  chief  present  problem 
of  the  Canadian  banks  is  not  so  much  the  obtaining  of 
new  deposits  as  the  remunerative  and  short  time  em- 
ployment of  those  they  already  have  with  a  view  to 
bemg  in  a  strong  position  when  the  war  comes  to  an 
end,  to  assist  in  the  process  of  adjustment  from  war 
to  peace  conditions—  a  matter  that  is  engaging  the 
serious  attention  of  all  thmking  men  in  Canada. 

REVIEW 

Describe  the  various  forms  of  currency  used  in  Canada. 
What  currency  is  legal  tender? 

What  is  meant  by  elasticity  in  currency?  How  does  the 
Canadian  system  of  note  issue  provide  for  this? 

What  situation  proved  the  excellence  of  the  Canadian 
banking  system?     How? 

Why  does  the  branch  bank  system  work  particularly  well 
in  Canada?  ^  ^ 


CHAPTER  VI 

ANALYSIS  OF  A  BANK  STATEMENT 

1.  Bank  statements.— The  Bank  Act  requires  the 
banks  to  furnish  the  government  with  monthly  state- 
ments of  their  assets  and  liabilities,  and  in  addition  to 
these,  an  annual  statement  to  the  shareholders.    The 
latter  differs  only  shghtly  in  detail  from  the  monthly 
statements,  and  is  submitted  to  the  shareholders  at  the 
annual  general  meeting,  accompanied  by  the  profit- 
and-loss  statement  and  t\e  report  of  the  auditors 
The  annual  reports  of  the  several  banks  appear  at 
various  dates  during  the  year,  principally  during  the 
wmter   months.     The   monthly   and   annual   state- 
ments are  published  in  the  various  financial  and  other 
papers  and  are  subjected  to  the  closest  scrutiny  and 
analysis  both  by  the  press  and  the  banks  themselves. 
The  totals  of  the  combined  monthly  statements  of 
the  banks  as  published  by  the  government  are  of  par- 
ticular interest,  as  the  figures  generally  afford  a  very 
fair  barometer  of  the  financial  condition  of  the  coun- 
try. 

To  the  average  man  a  bank  statement  has  no  more 
than  a  passing  interest.  Even  if  he  goes  so  far  as  to 
compare  the  statement  of  one  bank  with  another,  the 
bare  figures  tell  him  very  little  more  than  that  one 

89 


90 


BANKING  PRINCIPLES 


oo 


t 


u 


la  bJ 


COM   S3    pa 


I 


•S5  a  S  J; 

«  So,*  «  S  a  a  a 

sS"0  S"^~  s  -  - 

"  «  t.  a----  o  o  o 

w  tf         3  O  O 


J^ 


BANK  STATEMENTS  91 

bank  has  larger  deposits  or  loans  than  the  other,  but 
as  to  the  standing  or  earning  power  of  the  banks  in 
question,  he  can  form  but  a  faint  idea  until  he  has 
compared  them  on  a  common  percentage  basis,  say,  to 
total  assets.    A  frll  understanding  of  a  statement  of 
a  bank  forms  a  very  good  introduction  to  the  actual 
practice  of  the  business;  and  in  order  to  present  the 
leading  features  in  the  most  comprehensive  form  the 
statement^  on  page  90  (Figure  4)  has  been  pre- 
i^ared.    This  is  based  on  the  annual  statements  of 
several  banks,  with  the  amounts  under  the  various 
headings  reduced  to  a  percentage  to  total  assets.    For 
comparison,  a  percentage  to  total  liabilities  to  the 
public  is  also  given.  The  several  headings  will  be  con- 
sidered briefly  in  detail,  and  should  be  studied  with 
special  reference  as  to  their  relation,  the  one  with  the 
other.    The  percentages  will  be  referred  to  as  dollars 
in  discussing  them. 

A  bank  statement  is  primarily  intended  to  show  the 
distribution  of  the  assets  of  a  bank  and  to  whom  they 
ultimately  belong,  the  public  or  the  shareholders. 
The  bank  occupies  a  dual  relation  to  the  public;  it  is, 
on  the  one  hand,  a  borrower  of  credit  and,  on  the 
other,  a  lender.  The  prime  qualification  for  success- 
ful banking  is  so  to  command  the  public  confidence 
that  the  public  will  deposit  its  money  freely  and  con- 
tinuously.    The  liabilities  of  a  bank  to  the  public  are 

1  This  statement  should  also  be  compared  with  the  percentage  of  the 
combined  monthly  statements  of  all  the  Canadian  banks  as  reported  to 
the  government  for  the  monui  of  July,  1913,  Figure  2. 


9S 


BANKING  PRINCIPLES 


therefore  of  the  most  vital  importance  to  its  existence 
and  will  be  considered  first. 

2.  Deposits  payable  after  notice.— A  reference  to 
the  statement  will  show  that  nearly  60  per  cent  of  the 
liabilities  to  the  public  consist  of  interest-bearing  de- 
posits or,  as  they  are  sometimes  caUed.  time  deposits 
or  savings  bank  deposits.     They  form  the  largest  indi- 
vidual item  in  the  statement  with  the  exception  of  cur- 
rent loans.    Time  deposits  are  so  called  because  they 
are  deposits  made  in  the  savings  bank  department  of  a 
bank  and  under  the  rules  of  the  department  are  sub- 
ject  to  a  withdrawal  notice  of  ten  or  fifteen  days. 
Practically,  they  are  payable  on  demand,  as  no  bank 
now  makes  a  practice  of  exacting  the  required  notice, 
altho  the  majority  still  retain  a  clause  to  that  effect 
m  their  pass  books.    All  these  deposits  bear  interest 
at  the  rate  of  three  per  cent  compounded  semi-an- 
nually. 

The  chief  diflScalty  a  bank  experiences  in  this  kind 
of  deposit  lies  in  the  fact  that  a  certain  class  of  the 
public  IS  inclined  to  look  upon  a  savings  bank  account 
as  a  convenience  as  well  as  an  investment;  the  two  are 
not  compatible.     A  time  deposit  requires  a  small  re- 
serve and  a  minimum  of  bookkeeping  and  a  three  per 
cent  rate  leaves  a  margin  of  profit  to  the  bank,  but  to 
give  three  per  cent  on  an  account  subject  to  frequent 
checking  is  another  matter  and  would  be  likely  to  re- 
sult in  an  expense  to  the  bank  rather  than  a  profit. 
Jn  fact,  of  late  years  many  of  the  savings  bank  de- 


BANK  STAIEMENTS 


98 


i 

9 


I 


posits,  thru  competition,  have  been  allowed  to  develop 
into  ordinary  checking  accounts. 

Theory  as  well  as  experience  in  Canada  has  shown 
that  no  bank  can  r.fford  to  pay  a  higher  rate  than  three 
per  cent  without  seriously  affecting  its  position.    In 
fact  an  increase  of  even  one-half  or  one  per  cent  would 
change  the  present  net  profits  of  the  majority  of  the 
banks  into  a  loss.^    Deposits  bought  too  dearly  must 
be  fully  employed  because  interest  and  dividends  must 
be  earned  in  some  way.    Competition  prevents  a  bank 
from  lending  money  to  legitimate  enterprises  at  a 
higher  rate  than  the  market  rate;  consequently  a 
bank  paying  a  high  rate  for  its  deposits  is  forced  to 
invest  its  money  in  risky  undertakings,  or  else  to  main- 
tain inadequate  leserves,  both  very  dangerous  and  un- 
desirable expedients. 

Fortunately,  the  bulk  of  the  savings  bank  deposi- 
tors are  quite  content  to  use  their  savings  bank  ac- 
counts for  the  purpose  intended— a  depositing  place 
for  their  surplus  money.     Each  person  who  keeps  a 
bank  account  does  so  for  his  own  convenience,  but 
the  result  is  an  enormous  control  of  credit  placed  at 
the  disposal  of  the  industries  of  the  country  thru  the 
agency  of  the  banks  and  their  branches.    In  fact  with- 
out these  deposits  banks  could  render  but  little  assist- 
ance to  the  trade  and  commerce  of  the  country.     The 
steadiness  of  these  deposits,  the  fact  that  by  the  law 
of  average  they  can  be  relied  upon  to  remain  fairly 
constant  in  amount  and  that,  except  in  very  stringent 

»  See  Section  93,  also  Chapter  on  Bank  Cost  Accoiinting. 


M 


BANKING  PRINCIPLES 


times,  they  are  constantly  increasing,  is  the  basis  of 
the  commercial  credit  system  of  Canada. 

8.  Demand  deposits. — Demand  deposits  represent 
amounts  due  to  individuals  and  firms  payable  on  de- 
mand. No  interest  is  paid  on  se  accounts  except 
in  special  cases  where  a  large  dormant  balance  is  kept 
which  coi'-ld  otherwise  be  transferred  to  the  savings 
bank  department.  The  average  current  accounts  are 
frequi  ly  run  at  a  loss,  and  were  it  not  for  the  col- 
lateral pr'^fits  accruing  from  the  connection  in  the 
shape  of  exchange,  discount  and  the  like,  the  burden 
of  operating  them  would  be  serious.  The  average 
cost  of  carrying  a  small  account  has  been  variously 
estimated  at  from  $15  to  $25  per  annum,  io  cover 
t,his  expense  a  full  balance  of  at  least  $800  is  neces- 
sary. 

In  order  to  prt  /ent  the  abuse  of  the  checking 
privilege  some  of  the  banks  make  a  nominal  charge  for 
canying  small  checking  accounts,  but  it  is  a  question 
e^  en  then  if  the  bank  comes  out  ahead. 

The  ratio  of  total  deposits  to  the  capit -l  and  re- 
serve of  he  average  bank  is  so  large  that  even  a  small 
increase  in  tho  interest  rate  or  in  the  expense  of  op- 
erating the  deposits  will  materially  affect  the  earnings 
on  capital,  unless,  as  has  already  been  pointed  out, 
the  question  of  maintaining  adequate  reserves  is  neg- 
lected. In  a  lecture  on  "Interdependence  of  Trade 
and  Banking"  George  H.  Pownall,  an  English 
banker,  in  referring  to  the  question  of  banking  profits, 
says: 


BANK  STATEMENTS 


95 


Banking  would  not  be  possible  if  its  present  lines  were 
seriously  changed.     We  have  to  bear  in  mind  that  the  busi- 
ness of  banking,  like  every  other  kind  of  business  of  long 
standing,  has   evolved  itself  by   daiJy-accumulating  exp  * 
nence.     I  be heve  thav  depositors  cannot  expect  a  greater 
return  than  they  now  obtain,  unless  there  were  some  General 
change  in  the  supply  of,  and  the  demand  for,  banable  capi- 
tal     Bankers  do  not  take  in  deposit  money  as  an  invest- 
ment for  the  depositor.     The  money  come*,  in  at  the  wUl  of 
Its  owner,  without  notice,  and  is  withdrawn  without  notice. 
1  hat  consideration  governs  the  employment  by  bankers  of 
their  deposit  money.     They  have  individually  to  judge  from 
the  circumstances  of  their  particular  business  what  per- 
■     .u^^  °f„^*»\*«  t»»eir  total  liabilities  they  need  to  keep 
in  their  tills,  what  percentage  of  cash  they  shall  keep  un- 
employed to  m.ure  the  public  confidence  in  the  stability  of 
their  »-:»tut»on    and  what  percentage  of  their  liabiJities  to 
the  public  shall  be  represented  by  first-class  securities,  and 
first-class  securities  so  written  down  in  price  that  nothing 
but  an  extraordinary  public  catastrophe  shall  reduce  their 
selling  price  below  the  figures  at  which  they  appear  on  the 
balance-sheet    and  so  produce  an  apparent  deficiency  in  the 
assets  of  the  bank.     To  keep  money  unemployed  is  to  lessen 
earning  power;  to  hold  first-class  securities  is  to  obtain  lejs 
than  the  average  rate  of  return  on  money  employed  in  loans, 
and  to  write  them  down  to  a  safe  level  is  a  form  of  insurance 
tnat  expert  opinion  demands  of  a  banker. 
1    ^iJt  "°*  °"^y/rojn  within  that  these  matters  have  to  be 
ooked  at.  It  ,s  also  from  without.     There  is  a  large  class  of 
the  public  perfectly  able  to  reckon  up  the  safetv  or  inse- 
curity indicated  by  the  broad  lines  of  a  bank  balance-sheet, 
and,  m  the  long  run,  the  strongest  institutions  get  the  de- 

K'"      .^'^u^u-l"'''  *l.!*  '"^^  «'^^^'  »  b«"l^e''«  balance- 

bantr  r  Wvl^'^  r?  t^'^'\  *°  P^^  *"^  proportion  of  the 
banker  s  Imbihties  likely  to  be  called  for  by  nervous  people 
in  times  of  stress  not  merely  because  the  call  for  repayment 
needs  to  be  faced,  but  also  because  to  exhibit  strength  is  to 
disincline  people  to  make  the  demand. 


XVI-<8 


96 


BANKING  PRINCIPLES 


4.  Deposits  elsewhere. — These  amount  to  $6.90* 
and  represent  deposits  by  individuals  and  firms  made 
in  branches  outside  of  Canada.  Part  of  these  de- 
posits in  all  probability  bear  interest.  Combining 
them  with  the  deposits  maintained  by  foreign  banks 
gives  a  total  of  nearly  $9  representing  funds  supplied 
by  depositors  outside  of  Canada.  An  examination  of 
the  asset  side  of  the  statement  shows  that  the  greater 
part  of  this  amount  is  invested  as  a  quick  asset  in  call 
loans  outside  of  Canada  and  on  deposit  with  foreign 
banks.  This  question  will  be  fully  considered  in  con- 
nection with  call  loans. 

5.  Due  banks  in  Canada. — Owing  to  the  fact  that 
practically  every  Canadian  bank  is  represented  by 
branches  in  the  redemption  centers  and  other  large 
towns,  there  is  no  necessity  for  it  to  maintain  balances 
with  other  banks  for  the  protection  of  its  interests  at 
those  points,  and  any  balances  which  may  be  due  be- 
tween banks  in  Canada  are  merely  as  matters  of  con- 
venience in  connection  with  collection  arrangements. 

6.  Due  to  banks  in  foreign  countries. — Under  this 
heading  are  included  all  amounts  due  to  foreign  cor- 
respondents and  represent  balances  which  are  main- 
tained by  banks  of  Great  Britain,  United  States,  Eu- 
rope and  elsewhere  which  have  business  relations  with 
Canada. 

7.  Dominion  and  provincial  governments. — The 
branches  of  the  banks  act  as  depositaries  of  the  Domin- 
ion and  provincial  governments,  and  transfer  funds 

1  Read  thus:    "$6.90  out  of  every  $100  due  the  public." 


BANK  STATEMENTS 


97 


received  at  their  various  branches  to  Ottawa  or  to  the 
several  provincial  capitals.  All  customs,  internal 
revenue  and  Post  Office  receipts,  including  the  de- 
posits of  the  Postal  Savings  Bank,  are  deposited  by 
the  federal  officers  in  the  local  branches  of  the  various 
banks  thruout  Canada,  and  are  transmitted  by  them 
to  Ottawa  for  the  credit  of  the  government.  Gov- 
ernment checks  of  every  description,  including  those 
issued  on  account  of  withdrawals  from  the  Postal  Sav- 
ings Bank,  are,  by  the  Bank  Act,  payable  without 
charge  at  any  branch  of  any  bank  in  Canada. 

Altho  the  collection  and  disbursement  of  the  na- 
tional revenues  involve  a  great  deal  of  work,  it  is  done 
wiUingly  by  the  banks,  not  only  in  a  way,  as  a  return 
for  the  note  issue  privilege,  but  also  as  an  appreciation 
of  the  practical  and  economical  manner  in  which  the 
g-overnment  handles  its  revenues  and  funds.     So  effi- 
ciently is  this  done  thru  the  banks  that  no  disturb- 
ance is  ever  made  in  business  or  financial  circles  by  the 
movement  of  government  moneys,  notwithstanding 
their  very  large  aggregate.    All  revenues  received  are 
left  with  the  banks  for  commercial  use  until  ultimately 
disbursed  by  the  government.     There  is  no  wasteful 
piling  up  of  gold  in  government  vaults;  everj-  cent  is 
allowed  to  do  its  share  in  the  economic  development 
of  the  countrj'  until  wanted. 

The  net  balance  due  to  the  government  may  be  mo- 
bile, and  at  tunes  comparatively  small,  but  the  princi- 
ple is  sound  and  works  well  in  every  respect.  It 
would  be  almost  impossible  to  devise  a  scheme  for  the 


98 


BANKING  PRINCIPLES 


coUection  and  disbursement  of  government  revenues 
that  would  work  more  smoothly  or  efficiently. 

Canada  in  her  scientific  administration  of  govern- 
ment  funds  differs  from  almost  every  other  country. 
The  balances  of  the  provincial  governments  consist 
prmcipally  of  deposits  in  connection  with  the  Inland 
Revenue  Department  and  judiciary  accounts.  The 
balances  due  the  Dominion  and  provincial  govern- 
ments are  privileged  claims  on  the  assets  of  a  bank  and 
rank  above  those  of  other  depositors. 

8.  Circulation.-.The  nature  of  this  liability  has 
been  fully  explained  in  Chapter  V.  It  will  be  no- 
ticed  that  the  amount  given  in  the  statement  is  less 
than  the  paid-up  capital.  No  bank,  especially  one 
with  numerous  branches,  would  feel  safe  in  increasing 
Its  circulation  over  this  margin  except  during  the  pe- 
nod  of  emergency  currency.  During  that  period, 
namely,  September  first  to  February  twenty-eighth 
the  circulation  could  be  increased  to  $9.19 

In  addition  to  the  protection  offered  to  the  note- 
holder by  the  general  five  per  cent  redemption  fund  of 
}  t\.        '  *^'  statement  shows  that  the  circulation 
of  $6.54  IS  protected  by  the  total  assets  of  the  bank 
and  the  double  liability  of  the  shareholder,  $120.39, 
or  practically  over  $91  for  every  $5  in  circulation. 
Both  the  emergency  currency  and  the  central  gold 
reserves  will,  under  certain  conditions,  prove  of  great 
advantage  both  to  the  public  and  the  banks    but 
neither  will  be  profitable  to  the  banks.    The  emer- 
gency  currency  bearing  interest  at  five  per  cent  will  be 


BANK  STATEMENTS  99 

availed  of  at  a  decided  loss,  while  the  central  gold  re- 
serve will  result  in  a  small  loss. 

9.  Capital  and  r^«^ri;^.— The  total  liability  to  the 
pubhc  IS  equal  to  $88.31  of  the  total  assets,  and  the  bal- 
ance, $11.69,  belongs  to  the  proprietors  or  share- 
holders.    The  latter  consists  of  capital,  $6.33,  and  re- 
serve and  undivided  profits,  $5.36.    A  reference  to 
the  profit-and-ioss  sheet  on  page  120  shows  that  the 
dividends  declared  were  equal  to  10  per  cent  of  the 
capital,  or  5.4V  per  cent  on  the  capital  and  reserve. 
Ihe  net  profit  earned  on  capital  and  reserve  is  10.50 
per       It  or,  as  it  is  generally  published,  19.30  per 
cent  on  the  paid-up  capital.     The  method  of  basing 
earnings  on  the  percentages  to  paid-up  capital  is  a 
misleading  one,  and  should  be  abandoned  by  the  banks 
and  financial  papers  or  used  only  in  conjunction  with 
the  percentage  on  capital  and  reserve.     To  base  earn- 
m^  on  capital  not  only  gives  an  erroneous  idea  to  the 
public  of  the  earning  powers  of  banks,  but  does  not 
form  a  fair  method  of  comparison. 

In  case  of  the  insolvency  of  a  bank  the  shareholders 
are  hable  to  be  caUed  upon  for  an  amount  equal  to  the 
par  value  of  their  shares. 

10.  Specie  and  Dominion  notes.— Under  this  head- 
ing are  included  not  only  the  gold  and  large  legal 
tender  held  by  the  bank  for  its  cash  reserve  and  clear- 
ing house  settlements,  but  it  includes  also  the  till  and 
change  money  at  the  various  branches.  The  latter 
however,  forms  a  very  small  proportion  of  the  whole! 

Ihe  only  reference  made  by  the  Bank  Act  to  a  cash 


100 


BANKING  PRINCIPLES 


reserve  is  in  connection  with  the  requirement  that  at 
least  40  per  cent  of  the  cash  reserve  must  consist  of 
Dominion  notes.     It  is  left  entirely  to  the  judgment 
of  the  individual  banks  themselves  to  fix  their  own 
cash  reserves,  and  the  experience  so  far  has  fully  borne 
out  the  wisdom  of  non-interference  in  this  connection 
or.  the  part  of  the  government.     Considering  that 
practically  all  the  till  money  is  in  the  form  of  a  bank's 
own  notes,  the  average  cash  reserve  maintained  by  the 
banks  of  about  10  per  cent  to  12  per  cent  has  proved 
fully  adequate  at  all  times.     Some  banks  maintain  a 
higher  and  some  a  slightly  lower  rate  than  the  above 
according  to  their  circumstances  or  requirements,  the 
ratio  varying  with  the  same  bank  at  different  times. 
The  daily  redemption  of  notes  and  checks  thru  the 
clearings  all  over  Canada  acts  as  a  constant  check  to 
any  tendency  on  the  part  of  a  bank  to  lower  its  re- 
serve below  a  certain  limit. 

11.  Notes  and  checks  of  other  hariks.—Thxs  amount 
represents  notes  and  checks  of  other  banks  in  process 
of  clearing.  These  have  been  deposited  by  customers 
during  the  day,  and  in  the  ordinary  course  are  pre- 
sented and  redeemed  thru  the  "clearing"  the  following 
morning.  As  the  customer  is  given  credit  the  same 
day  and  the  bank  does  not  receive  returns  until  the 
following  day,  this  amount  represents  a  loss  of  one 
day's  interest  to  the  banks  and  forms  a  very  consider- 
able item  in  the  course  of  a  year.  The  average 
amount  outstanding  under  this  heading  for  all  the 
banks  in  1912  was  nearly  $70,000,000,  representing  a 


ta 


BANK  STATEMENTS  Id 

steady  loan  to  the  public  for  that  amount  without  in- 
terest. The  average  note  circulation  for  1912  was 
$100,000,000 ;  this  item  offset  it  70  per  cent.  In  addi- 
tion  to  this  the  amount  of  checks  in  transit  between 
the  branches  of  the  different  banks  themselves  would 
run  considerably  over  $100,000,000. 

12.  Deposits  with  other  banks.— These  amounts 
represent  the  balances  maintained  in  the   United 
States,  Great  Britain  and  elsewhere  in  connection 
with  exchange  operations,  and  make  also  a  very  useful 
wiv  of  carrying  a  certain  proportion  of  the  bank's  re- 
serve.   These  balances  combined  with  specie.  Do- 
mimon  notes  and  the  notes  and  checks  of  other  banks 
form  $18.28  of  the  bank's  total  assets,  are  generally 
blown  as  quick  assets.    With  the  exception  of  a  few 
of  the  bank  accounts,  on  which  a  low  rate  of  interest 
IS  sometimes  obtained,  the  quick  assets  do  not  earn 
interest. 

13.  Securities.— The  securities  held  amount  to  $7.59 
of  the  total  assets  and  consist  of  municipal  bonds  and 
other  first-class  investments.  The  banks  are  not  re- 
stricted in  their  choice  of  this  class  of  security  and 
may  purchase  not  only  government,  provincial  and 
municipal  bonds,  but  also  the  bonds  of  domestic  and 
foreign  railways  and  industrial  corporations.  Banks 
look  upon  these  securities  as  a  kind  of  secondary  re- 
serve, and  include  them  with  call  loans  among  their 


liquid  assets. 

14.  CaU  loans  in  Canada.— CnU  loans 
represent  advance         de  to  brokers  and 


in  Canada 
other  cus- 


10« 


BANKING  PRINCIPLES 


tomers,  principally  the  former,  on  the  security  of  first- 
class  stocks  and  bonds,  with  an  average  margin  of 
some  twenty  points  below  the  market  value  of  the 
stock  and,  if  lent  conservatively  and  watched  care- 
fully, form  a  safe  and  remunerative  asset. 

Call  loans  in  Canada  are  not  call  loans  in  the  strict 
acceptance  of  the  word.    The  securities  given  as  col- 
lateral have,  as  a  rule,  only  a  limited  market  princi- 
pally confined  to  Canada.    Comparatively  few  of 
them  are  listed  on  the  stock  exchanges  of  New  York 
and  London,  and  they  consequently  cannot  be  looked 
upon  as  a  means  of  increasing  the  cash  reserve  of  the 
country  in  case  of  emergency.    An  individual  bank, 
m  ordinary  times,  can,  of  course,  reduce  its  call  loans 
in  Canada  at  anv  time  for  its  own  purpose,  the  brokers 
simply  borrowing  from  another  bank  to  meet  the  call, 
but  in  a  general  emergency  a  prompt  response  to  a 
call  by  a  considerable  number  of  banks  could  not  be 
relied  upon. 

Under  these  circumstances  the  rate  of  interest 
charged  on  these  loans  is  considerably  higher  than  that 
obtaining  on  strictly  call  loans  in  New  York  and  Lon- 
don, and  is  only  slightly  lower  than  the  rate  charged 
on  commercial  loans,  seldom  falling  below  five  per 
cent.  In  times  of  financial  stringency  the  rate  on 
call  loans  is  generally  higher  than  the  commercial 
rate,  which  remains  practically  unchanged. 

The  Canadian  custom  of  requiring  a  man  to  con- 
fine his  borrowing  to  one  bank— the  one-bank  policy 
as  it  is  called— does  not  apply  to  brokers  who  from  the 


BANK  STATEMENTS  lOg 

nature  of  their  business  borrow  where  they  can,  the 
loans  depending  entirely  on  the  securities  pledged, 
rather  than  on  the  financial  standing  of  the  borrower. 
A  broker  is  therefore  a  customer  of  one  bank  but  a 
borrower  from  many.  These  latter  natiu-ally  look 
after  their  own  commercial  customers  first,  and  the 
broker,  not  being  a  regular  customer,  is  of  only  sec- 
ondary consideration,  and  he  is  loaned  any  surplus 
money  of  the  bank  after  the  requirements  of  the  com- 
mercial  and  other  customers  have  been  met 

Banks  are  frequently  accused  of  encouraging  specu- 
lation  on  the  stock  market  at  the  expense  of  their  com- 
mercial  customers,  but  this  is  certainly  far  from  the 
case,  as  wiU  be  vouchsafed  for  by  any  broker. 

15.Cdl  loans  elsewhere.— The  ckll  loans  carried 
by  certain  of  the  larger  banks  in  New  York  and  Lon- 
don subject  them  to  a  great  deal  of  undeserved  criti- 
cism, as  It  IS  a  common  belief  on  the  part  of  the  public 
and  the  average  newspaper  man  that  the  Canadian 
banks  lend  money  in  New  York  because  of  the  higher 
rates  obtainable  there.     Such  criticism  betrays  a  total 
Ignorance  of  the  nature  of  the  Canadian  bank  re- 
serve for,  if  these  call  loans  were  not  maintained,  the 
Canadian  borrower  would  be  no  better  off  than  now. 
Ihe  banks  would  have  no  alternative  but  to  carry  the 
amount  m  gold  in  their  own  vaults.    This  would  not 
only  mean  a  loss  of  earning  power  to  the  banks,  but 
would  also  cripple  them  in  the  foreign  exchange  and 
other  facihties  which  they  now  offer  the  public 
If  these  critics  would  take  the  trouble  to  examine 


104  BANKING  PRINCIPLES 

the  government  statement  and  ascertain  the  net 
amoimt  of  Can'^dian  money  which  is  invested  in  call 
loans  outside  of  Canada,  they  would  doubtless  be  sur- 
prised at  the  results. 

Take  for  instance  the  foreign  loans  in  the  govern- 
ment statement  for  the  month  ended  June  80, 1918: 

Assets: 

Balance  due  by  banks  in  the 

United  Kingdom $15,941,857 

Balances     due     by     foreign 

banks 33,165,595 

Call  loans  elsewhere  than  in 

Canada    89,363,520 

Current  loans  elsewhere  than 

in  Canada 36,894,681 

,.  ,.,.,.  $175,366,063 

Ltabutttes: 

Due      depositors      elsewhere 

than  in  Canada $104,289,788 

Due  banks  in  United  King- 
dom           11,755,653 

Due  foreign  banks .,         7,656,846 

$123,702,281 
Net  amount  supplied  by 

Canada   51,662,772 

$175,365,053 

The  critic  would  point  out  that  Canadian  banks  had 
over  $175,000,000  of  their  assets  in  foreign  loans  and 
bank-balances,  and  that  this  should  be  loaned  to  Cana- 
dian borrowers.  They  seldom  look  at  the  other  s,' '° 
of  the  return  which  shows  that  over  $123,000,000  o. 
this  amount  represents  outside  capital  on  deposit  in 


BANK  STATEMENTS  105 

the  banks,  leaving  only  $52,000,000  as  the  actual 
amount  supplied  by  Canadian  banks  toward  a  very 
important  part  of  their  reserve.  This  is  only  3.42  per 
cent  of  the  total  assets,  an  insignificant  amount  com- 
pared with  the  real  benefits  which  it  creates. 

As  regards  earning  a  higher  rate  of  interest  in  the 
foreign  call  markets,  the  argument  is  fallacious.    The 
rate  for  call  loans  in  Canada  is  seldom  below  five  per 
cent,  and  while  the  call  loan  rate  in  New  York  mav 
fluctuate  widely,  ranging  from  2  per  cent  in  times  of 
redundancy  up  to  such  extreme  figures  as  18  per  cent 
when  money  is  extremely  scarce,  the  Canadian  banks 
cannot  place  any  dependence  in  an  extra  earninf? 
power  for  funds  so  utilized.    For  example,  early  in 
September  1919  the  call  loan  rate  in  Canada  was 
about  5i  per  cent  while  that  in  New  York  fluctuated 
around  6  per  cent.    From  the  gross  income  of  such 
call  loans  m  New  York  there  must  be  deducted  the 
heavy  state  tax  on  loans  of  foreign  corporations;  this 
subtraction  reduced  the  net  rate  received  by  the  Can- 
adian banks  to  something  between  2^  per  cent  and  3 
per  cent.    At  this  rate  it  would  certainly  be  to  the 
advantage  of  the  banks  to  confine  themselves  entirely 
to  Canadian  call  loans  or  even  place  money  on  deposit 
with  one  another  at  three  per  cent.    The  banks,  how- 
ever,  fully  realize  that  safety  must  be  considered  be- 
fore profit,  and  that  the  investment  in  outside  call 
loans  provides  the  best  form  of  reserve,  next  to  the 
actual  gold  m  their  vaults. 

New  York  is  one  of  the  international  money  mar- 
kets of  the  world  to  which  funds  flow  freely  from 
abroad.     Gold  can  be  obtained  there  at  any  time. 
^£L-k^aaian__banks  have  on  m 


106  BANKING  PRINCIPLES 

tested  their  ability  to  liquidate  loans  in  New  York  and 
bring  them  to  Canada  in  the  shape  of  >ld.  New 
York  is  within  half  a  day's  journey  from  Montreal 
or  Toronto,  and  to  all  intents  and  purposes  is  just 
as  convenient  as  if  the  gold  were  kept  in  Montreal  or 
Toronto. 

Sir  Edmund  Walker,  in  an  interesting  uAicle  in 
the  Monetary  Times  on  this  subject,  concludes  with 
the  following  example  of  the  actual  working  of  this 
form  of  reserve  during  the  panic  of  1907: 

That  the  banks  draw  freely  upon  their  funds  out  of 
Canada  to  mec'  the  requirements  of  their  Canadian  busi- 
nes-  was  very  c(  .clusively  demonstrated  at  the  time  of  the 
last  United  States  panic.  According  to  the  Government 
Bank  Statement  of  September  30,  preceding,  the  position  as 
regards  the  outside  accounts  of  the  banks  was  as  follows : 

Call  loans  outside  Canada $63,168,601 

Current  loans  outside  Canada Je6,794,09« 

$88,952,693 
Deposits   and  balances  due  outside 

Canada      76,178,950 

Net      amount      employed      outside 
Canada   $12,773,743 

The  panic  in  the  United  States  may  be  said  to  have  com- 
menced in  October,  1907,  and  at  November  30,  later,  the 
position  of  the  Canadian  banks  as  regards  their  outside  ac- 
counts had  changed  to  the  following: 

Call  loans  outside  Canada $41,198,293 

Current  loans  outside  Canada 23,576,316 

$64,774,608 


BANK  STATEMENTS 

Deposits  and  balances  due  outside 
Canada   


im 


67,616»118 


Net    balance    ouing    by    Canadian 

banks  outside  Canada $«,841,606 

♦^,'"*^*'f^*oJ!!l°"^^.T'^^*'°"''  "^^'^  «*»*«d  in  Canada  at 
the  end  of  1907  and  the  early  part  of  1908.  led  in  all  parts 

of  the  country  to  a  clamor  against  the  banks,  who  were 
accused  of  lending  in  New  Vork,  moneys  gathered  from  their 
Canadian  customers  and  needed  in  Canada.  But  it  will  be 
seen  from  the  above  figures  that  during  a  period  when  caU 
money  commanded  very  high  rates  in  New  York,  the 
Canadian  banks  in  less  than  two  months  reduced  their  call 
loans  outside  of  Canada  by  $22,000,000  and  that  by  the 
end  of  November,  instead  of  having  Canadian  funds  em- 
ployed outside  Canada,  the  balance  was  actually  the  other 
way  to  the  extent  of  $2,841,000,  a  condition  of  affairs 
which  continued  several  months  into  1908. 

Li  the  payment  of  its  debts  due  abroad  or  in  seUinir  ex- 
change against  commodities  shipped  by  Canada,  New  York 
IS  tae  market  where  aU  such  transactions  must  be  settled 
and,  therefore,  ready  money  to  be  available  in  the  operations 
o  a  Canadian  Bank  is,  in  the  majority  of  cases,  needed  in 
New  York. 

A  careful  examination  of  the  evidence  must  make  the 
followmg  clear  to  any  intelligent  person : 

1.  That  the  banks  lend  money  in  New  York  at  a  much 
lower  average  rate  than  loans  produce  in  Canada ; 

2.  That  the  high  rates  of  interest  so  often  referred  to 
occur  only  at  rare  occasions  coincident  with  panic,  and  do 
not  materially  affect  the  average  rate  earned;  and  that  at 
the  time  of  such  high  rates  the  Canadian  banks  are  almost 
always  withdrawing  money  from  New  York  instead  of  send- 
ing it  there. 

8.  It  is  the  power  to  withdraw  money  at  such  times  which 
enables  the  Canadian  bankers  to  support  their  customers, 
and  It  IS  largely  because  o'  'his  power  that,  altho  the  finan- 


108 


BANKING  PRINCIPLES 


cial  history  of  the  United  States  is  marked  with  frequent 
panics,  no  financial  panic  has  taken  place  in  Canada  in 
recent  times. 

4.  The  object  of  the  loans  in  the  United  States,  there- 
fore, is  not  to  enlarge  the  profits  of  the  Canadian  banks  but 
to  enable  them  to  do  justice  to  their  customers  in  time  of 
stress.  Such  loans  are  an  evidence  of  caution  and  wisdom 
in  the  interest  of  Canada  and  the  policy  should  be  the  sub- 
ject of  praise  by  critics  of  Canadian  banks  and  not  of  dis- 
praise.^ 

16.  Reserves. — Including  call  loans  and  securities 
the  average  reserve  maintained  by  the  Canadian 
banks  lies  between  85  per  cent  and  40  per  cent  of  the 
total  assets,  of  which  about  10  per  cent  is  in  cash  and 
Dominion  notes,  10  per  cent  in  amounts  due  from 
other  bank:,  and  the  balance  in  securities  and  call 
loans.  The  banking  conditions  are  so  varied  in  the 
different  sections  of  the  country  and  in  different  iiisj 
tutions  that  it  would  be  impossible  to  establish  a  fixed 
legal  reserve  which  would  suit  all  conditions  and  sea- 
sons. Past  experiences  have  demonstrated  that  the 
question  may  be  left  safely  with  the  individual  banks 
themselves.  The  cash  reserve  of  the  Canadian  banks 
compares  favorably  with  the  general  average  of  the 
national  banks  of  the  United  States. 

The  fixed  legal  reserve  of  the  national  banks  of  the 
United  States  has  been  compared  to  certain  beds  in  a 
hospital  which  were  always  reserved  for  emergency, 
and  on  the  occasion  of  a  great  disaster  the  superin- 
tendent refused  to  permit  the  beds  to  be  used,  assert- 

t  Monttary  Timet,  Toronto,  J«ua.  9,  1919. 


BANK  STATEMENTS 


109 


mg  that  they  were  to  be  reserved  (or  emergencies. 
To  establish  a  legal  reserve  means  that  when  a  bank 
uses  its  reserve  for  what  it  is  intended,  it  breaks  the 
law  and  becomes  subject  to  severe  penalties.    Altho 
there  is  no  law  or  understanding  on  the  subject  in 
Canada  it  is  generally  conceded  that  the  total  quick 
assets  of  a  bank  should  not  be  allowed  to  fall  below 
15  per  cent,  of  which  at  least  eight  per  cent  shall  be 
m  cash  and  the  balance  in  notes  and  checks  of  other 
banks,  and  in  bank  balances.    In  the  statement  under 
consideration  it  will  be  noticed  that  the  quick  assets 
amount  to  18.28  per  cent  and  liquid  assets  to  84.84 
per  cent,  or  nearly  40  per  cent  of  the  liabilities  to  the 
public. 

With  the  establishment  of  the  central  gold  reserves, 
certain  new  phases  wiU  arise  in  connection  with  the 
computation  of  the  cash  and  other  reserves.  This 
feature  has  been  very  clearly  explained  in  an  article 
published  in  the  Financial  Times,  Montreal,  August 
16,  1913,  which  reads  as  follows: 

That  the  new  system  will  necessitate  a  somewhat  different 
method  of  computing  the  strength  or  weakness  of  a  bank  in 
point  of  reserves  is  evident.  Or  rather,  while  the  method 
will  remam  the  same,  the  standard  will  have  to  be  adjusted. 
Ihe  gold  deposited  in  the  Central  Reserve  cannot,  it  is 
plam,  be  regarded  as  an  available  cash  reserve,  except  to  the 
extent  to  which  there  is  no  currency  issued  against  it.  Gold 
which  IS  bemg  employed  as  the  basis  of  currency,  under  a 
law  which  requires  the  holding  of  a  full  dollar  in  specie  for 
every  dollar  of  the  corresponding  notes,  is  not  an  asset  at 
all ;  but  neither,  on  the  other  hand,  are  the  notes  of  liability. 
Ihe  issue  of  notes  against  deposited  gold,   therefore,  de- 


110 


BANKING  PRINCIPLES 


creases  the  amount  of  cash  assets,  but  does  not  increase  the 
amount  of  liabilities.     But  the  process  of  issuing  additional 
currency  implies  the  receipt  by  the  bank  of  something  with 
which  that  currency  is  purchased  by  the  person  who  takes 
it  out.     So  far  as  concerns  the  special  additional  currency 
taken  out  in  the  autumn  and  returned  before  spring — which 
is  the  only  class  of  circulation  to  which  the  Gold  Reserve 
clauses  will  at  present  apply,  since  the  ordinary  issue  power 
of  the  banks  up  to  the  limit  of  their  capital,  without  gold 
deposit  will  for  a  good  many  years  suffice  to  look  after  the 
all-the-year-round  requirements  of  the  nation — ^practically 
all  of  it  is  taken  from  the  banks  in  exchange  for  grain  re- 
ceipts, drafts  on  grain  shipments,  and  similar  high-grade, 
short-term,   readily  negotiable  securities.     These  securities 
have  in  themselves  a  certain  value  as  reserve.     They  are  not 
to  be  indiscriminately  ranked  with  the  ordinary  commercial 
loan  which  forms  the  bulk  of  the  all-the-year-round  business 
of  the  banks,  for  they  are  based  upon  a  commodity  which 
is  at  all  times  salable,  and  they  possess  a  negotiable  value 
far  in  excess  of  that  of  ordinary  commercial  paper.     In  ad- 
dition to  this,  they  will  be  steadily  disposed  of  by  the  banks 
in  the  international  money  market,  in  proportion  to  the 
speed  with  which  the  crop  moves  to  seaboard ;  and  if  money 
is  tight  and  reserves  low  it  is  in  the  power  of  the  banks  to 
exert  much  pressure  to  get  the  crops  moved  rapidly — as  they 
doubtless  will  do  this  season.     So  that  while  there  will  be 
an  apparent  reduction  in  the  reserve  strength  of  many  if 
not  all  the  banks  when  grain  payments  commence,  it  will  be 
much  more  apparent  than  real ;  and  the  gold  which  is  taken 
from  the  banks'  control  to  form  a  basis  for  the  extra  cur- 
rency can  in  case  of  need  be  replaced  without  any  grea 
difficulty  or  sacrifice. 

17.  Current  loans. — Current  loans  form  the  larg- 
est individual  item  in  the  statement,  and  consequently 
represent  the  bulk  of  a  bank's  investment.  This  is  an 
asset  which  requires  the  most  careful  and  unremitting 


BANK  STATEMENTS  IH 

Cun-ent  loans  can  be  brc  Aly  divide!  into  advances 
to  customers  and  bills  and  nu>^s  matu  -ing.  The  lat- 
ter are  tl^  more  desirable  bt  .a.i.e  ^ hev  are  principally 
composed  of  trade  bills,  with  a  currency  of  from  Lty 
to  nmety  days,  and  as  a  rule  can  be  rehed  upon  to  be 
retired  at  maturity.  A  good  portfoho  of  bills  is  no 
mean  factor  as  a  part  of  the  reserve.     Canadian 

.h'l    t\t         "1"'"  *°  *"^"  ^°"^^^  ^'^  P^Per  than 
that  of  three  or  four  months'  currency;  in  fact  the 

average  currency  of  a  good  bill  file  should  not  exceed 
SIX  weeks,  which  would  mean  a  steady  flow  of  money 
coming  m  every  day,  even  if  only  50  per  cent  of  the 
Items  maturmg  were  paid  in  full.^ 
Advances  to  customers,  however,  cannot  be  relied 

four  class^es'^^^  ^''*'''*'     ^^'^  ""^^  ^'  ^"^^^"^  ^^"^ 

(a)  Advances  made  to  customers  on  the  security 
ot  produce  and  other  merchandise; 

(b)  Advances  made  to  customers  on  stocks,  bonds, 
notes  and  other  collaterals; 

thl'l  ^^Tu^'  '"^^^  *^  customers  on  notes  other 
than  trade  bills;  and 

The  total  thus  arih^ed  at  w^Il  ?i,   ™S"""»  ""t^^  and  bills  in  the  diary. 
XVI-CW 


I 


lis 


BANKING  PRINCIPLES 


(d)  Advances  made  to  customers  or  single  name 
paper. 

The  first  two  call  for  very  little  comment,  and,  if 
well  margined,  form  a  desirable  asset.  The  third 
class,  altho  secured  by  two  or  more  names,  is  not  so 
desirable  from  a  banker's  point  of  view,  as  it  may  com- 
prise a  certain  amount  of  accommodation  paper.  Ad  • 
vances  to  customers  by  means  of  single  name  notes 
are  less  objectionable,  providing  the  customer's  state- 
ment shows  a  sufficient  margin  of  quick  assets  to  war- 
rant the  loan,  and  that  there  is  a  definite  understand- 
ing between  the  bank  and  the  customer  as  to  the  des- 
tination of  the  loan,  and  when  and  how  the  advance  is 
to  be  paid.  Occasionally  this  latter  class  of  advance 
is  made  by  means  of  overdraft.  This,  however,  is  a 
practice  that  should  not  be  encouraged  as  it  is  ob- 
jectionable for  many  reasons  which  will  be  given 
later.* 

It  is  the  two  latter  classes  of  notes  which  give  the 
most  anxiety  and  trouble  to  the  banker.  Unless 
great  care  is  taken,  the  bank  is  apt  to  become  a  part- 
ner, as  it  were,  in  more  or  less  undesirable  undertak- 
ings. It  is  here  we  find  the  dead  loans,  safe  enough 
no  doubt  so  far  as  ultimate  payment  is  concerned,  but 
still  not  banking  transactions. 

Advances  are  made  to  business  firms  and  others  that 
are  in  their  way  more  or  less  permanent,  sometimes 
consciously  so,  sometimes  made  so  by  force  of  cir- 
cumstances.   How  can  payment  of  such  loans  be  ob- 

1  See  Section  10,  Chapter  VII. 


BANK  STATEMENTS 


118 


tained  within  a  reasonable  time?  Or  in  case  of  fail- 
ure what  can  the  bank  do  with  the  wornout  works  or 
the  old-fashioned  mill?  It  finds  itself  a  partner,  fre- 
quently principal  partner,  in  the  business. 

It  is  therefore  most  necessary  for  a  bank  to  avoid 
advances  of  this  nature.  It  should  endeavor  to  keep 
its  loans  in  as  liquid  a  condition  as  possible,  and  in  rea- 
sonable proportion  to  its  deposits. 

Leroy-Boileau,  in  his  "Traite  d'Economie  Poli- 
tique," says: 

Banks  obtain  their  resources  generally  from  the  most 
mobJe  part  of  a  country's  capital— from  funds  scarcely 
constituted,  destined  for  an  investment  whose  character  has 
not  been  determined  or  for  consumption  slightly  postponed. 
In  view  of  this  origin  of  the  larger  part  of  banking  re- 
sources. It  follows  that  the  capital  lent  by  banks  ought 
always  to  remain  in  the  e  .  -on  of  circulating  capital, 
easily   convertible   into   mo  nd   should  not   be  trans- 

formed into  fixed  and  inconv  xcible  capital.     Banka  are  in- 
sUtuted  to  make  capital  circulate,  not  to  lock  it  up. 

18.  Overdue  debts.— These  call  for  very  little  com- 
ment; the  greater  portion  consists  of  notes  which  are 
overdue  owing  to  temporary  delays  in  settlement. 
Farmers  are  notorious  delinquents  in  this  respect. 
They  have,  however,  a  good  excuse,  particularly  in  the 
West,  owing  to  the  distances  they  generally  live  from 
the  bank.  There  is  not  the  same  excuse,  however, 
for  ordinary  business  paper  being  overdue,  and  the 
same  leniency  is  not  extended  to  a  business  man, 
whose  credit  is  seriously  affected  if  he  allows  his  pa- 
per to  frequent  the  overdue  file.    A  portion  of  the 


iiir. 


114 


BANKING  PRINCIPLES 


overdue  consists  of  doubtful  debts  for  which  full  pro- 
vision has  been  made. 

19.  Real  estate.— The  law  is  very  strict  as  to  banks 
holding  real  estate  other  than  that  required  for  their 
own  premises,  nor  can  they  lend  on  mortgages.  They 
may,  however,  take  a  mortgage  as  additional  security 
for  a  debt  akeady  incurred,  and  in  case  of  foreclosure 
they  are  allowed  to  bid  in  the  property,  but  cannot 
hold  it  over  a  certain  length  of  time.    Real  estate 
other  than  bank  premises,  in  the  statement,  repre- 
sents lands  which  have  been  acquired  in  this  mannev 
and  bought  in  by  the  bank  in  its  effort  to  improve  the 
position  of  a  doubtful  or  a  bad  debt.    Banks  nat- 
urally try  to  get  rid  of  property  thus  acquired  as 
quickly  as  possible  and,  in  making  sales,  frequently 
sell  for  part  cash  and  accept  security  for  the  balance  in 
the  shape  of  a  mortgage.     These  are  shown  in  the 
statement  as  "mortgages  on  real  estate  sold." 

20.  Bank  premises.—The  Bank  Act  permits  banks 
to  own  real  estate  and  erect  buildings  for  the  purposes 
of  their  business.  It  has  always  been  a  question  as 
to  whether  banks  have  the  right  to  erect  a  building 
and  rent  any  part  not  required  for  banking  purposes. 
The  question  is  not  a  serious  one  and  should  be  left 
to  the  banks  themselves. 

21.  Profit  and  loss  statement  of  a  bank, — A  study 
of  the  profit  and  loss  statement  of  the  various  Cana- 
dian banks  for  the  past  years  shows  very  conclusively 
that,  notwithstanding  the  large  increase  in  the  amount 
of  deposits  and  the  vohime  of  business  transacted, 


?  BANK  STATEMENTS  115 

the  profits  have  not  kept  pace  with  the  continuous 
increase  m  operating  expenses,  and  the  average  net 
earnings  on  assets  during  the  last  decade  has  dropped 
from  1.50  per  cent  to  1.26  per  cent.     Banks,  in  com- 
mon with  all  other  business  concerns,  have  had  to  pay 
out  more  in  salaries,  rents  and  other  expenses,  yet 
It  IS  seldom  realized  that  banking  charges  to  the 
pubhc  have  not  been  increased.    On  the  contrary, 
they  have  by  force  of  competition  and  other  causes 
been  considerably  reduced.     The  table  on  page  117 
shows  the  percentage  of  net  earnings,  etc.,  of  ten  of 
the  Canadian  banks  for  the  year  1912.     It  affords 
several   mteresting   comparisons    and   demonstrates 
that  the  earmngs  of  Canadian  banks  are  by  no  means 
commensurate  with  the  risk  and  work. 

Column  No.  1  will  assist  in  giving  tie  reader  some 
Idea  of  the  proportion  of  capital  and  reserve  to  total 
deposits  or,  if  the  reserve  ratio  is  required,  it  will  be 
found  by  dividing  this  percentage  into  100;  thus,  the 
deposits  of  bank  No.  1  are  six  times  its  capital  and 
reserve. 

The  second  column  gives  the  proportion  of  the  total 
assets  represented  by  interest  deposits,  and  shows 
what  a  very  important  part  the  interest-bearing  de- 
posits take  in  the  existence  of  a  bank  and  how  easily  a 
shght  increase  in  interest  would  materiaUy  affect  the 
net  profits. 

The  third  column  gives  the  net  profits  earned  on  the 
total  assets  of  the  banks.  Considering  the  large 
amount  of  the  turnover  during  the  year,  and  the  dou- 


116 


BANKING  PRINCIPLES 


ble  liability  of  the  shareholders,  these  figures  consti- 
tute a  very  small  return  for  the  amount  of  work  done 
and  the  risk  taken. 

Column  No.  5  shows  the  percentage  of  net  profit  to 
capital,  and  is  the  method  usually  adopted  by  banks 
and  financial  papers  in  commenting  upon  the  profit 
and  loss  sheet  of  a  bank.  As  it  shows  the  interest  on 
only  a  part  of  the  liability  to  the  shareholder  this  per- 
centage affords  no  useful  information,  unless  used  in 
conjunction  with  the  figures  given  in  column  No.  6. 
This  gives  the  percentage  of  net  profits  to  capital  and 
reserve  and  shows  the  true  net  earnings  on  the  pro- 
prietors' capital  before  any  dividends  have  been  de- 
clared or  amounts  written  off. 

Column  No.  7  gives  the  percentage  of  net  earnings 
before  any  dividends  have  been  declared  or  amounts 
written  off.  These  last  two  columns  will  show  where 
the  market  value  exceeds  the  book  value  or  vice  versa. 

Column  No.  8  gives  the  actual  dividends  paid.  It 
will  be  noted  that  many  of  the  banks  prefer  to  give 
their  shareholders  an  increased  return  on  their  invest- 
ment in  the  shape  of  a  bonus,  rather  than  an  increase 
in  the  dividend  rate.  It  is  evident  from  this  that 
banks  are  unwilling  to  make  a  permanent  increase  in 
their  dividends  in  case  they  might  not  be  able  to  main- 
tain it,  owing  to  the  very  narrow  margin  of  profit  on 
which  they  have  to  work. 

Column  No.  9  shows  the  yield  on  the  market  price 
of  the  stock  on  the  basis  of  the  figures  given  in 
column  10. 


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118 


BANKING  PRINCIPLES 


J- 


22.  Interest  on  deposits.— Trom  time  to  time  it  is 
advanced  in  the  public  press  and  elsewhere  that  the 
banks  should  pay  a  higher  rate  on  their  deposits  than 
three  per  cent,  especially  in  view  of  the  fact  that  they 
are  getting  six  and  seven  per  cent  for  their  money. 
Tho  nearly  the  whole  of  a  bank's  gross  revenue  is 
derived  from  interest  on  its  loans,  the  net  profit  is 
necessarily  governed  by  the  difference  between  the 
deposit  and  lending  rates  which,  in  Canada  as  in  aU 
other  countries,  bear  a  fixed  ratio  to  each  other,  firmly 
established  by  both  theory  and  experience.    Any  at- 
tempt to  deviate  from  this  fundamental  rule  of  corre- 
lation, either  by  raising  the  deposit  rate,  or  unduly 
lowermg  the  lending  rate,  can  lead  to  but  one  end 
as  many  banks  have  found  to  their  cost.    The  average 
difference  between  the  deposit  and  loaning  rate  of  Ca- 
nadian banks  is  three  per  cent,  and  any  increase  in  the 
former  must  be  accompanied  by  a  corresponding  in- 
crease in  the  latter. 

That  this  is  no  arbitrary  ruling  can  be  conclusively 
proved  by  examining  the  profit-and-loss  statement  of 
any  bank  on  a  basis  of  giving  a  fair  return  to  the  share- 
holder for  his  investment,  it  being  first  conceded  that 
every  business  should  pay  interest  upon  the  capital 
actually  invested  in  it  at  a  rate  determined  by  the  risk 
or  responsibility  incurred  in  the  business.  This  is  a 
practice  that  no  business  man  will  question,  and  there 
is  no  reason  why  the  banking  business  should  be  ex- 
cepted  from  its  application. 
No  man  is  willing  to  invest  his  money  in  an  active 


1 


BANK  STATEMENTS 


119 

business  which  involves  responsibility  and  the  meeting 
of  K^en  competition,  unless  he  thinks  there  is  the  prob- 
auihty  of  more  than  an  ordinary  return  in  interest. 
Bankmg  busmess  is  certainly  not  free  from  such  com- 
petition risks  and  responsibilities,  and  unless  a  bank 
can  make  a  reasonable  profit  upon  its  proprietors' 
investment   the  shareholders  might  as  well  put  the 
bank  into  liquidation  and  invest  their  capital  where 
It  will  be  free  from  risks  of  this  nature.     In  mak- 
ing such  an  apportionment   from  banking  profits 
for  capital  mvested,  six  per  cent  should  be  considered 
a  very  reasonable  rate  to  accord  to  shareholders  for 
the  use  of  their  money,  and  after  deducting  that 
amount  from  the  net  profits  of  the  bank  the  remainder 
represents  the  compensation  for  banking  services  and 
the  hke.    The  application  of  this  principle  to  the  an- 
nual  profit  and  loss  sheets  of  ten  banks  given  on  page 
117  demonstrates  very  graphically  how  impossible  it 
would  be  for  any  of  these  b-^nks  to  pay  a  higher  rate 
than  three  per  cent  on  their  deposits  without  increas- 
mg  their  lending  rate  accordingly. 

Colimm  4  in  the  table  on  page  117  shows  the 
amomit  of  profit  remaining  after  deducting  six  per 
cent  on  the  capital  and  reserve  of  the  different  banks. 
A  comparison  of  these  figures  with  those  given  in  the 
second  column  will  show  that  only  one  bank,  the 
fourth,  would  have  sufficient  profit  left  to  increase  the 
rate  on  its  mterest  deposits  one  per  cent ;  the  remain- 
ing banks  would  show  a  serious  deficit.  That  bank 
JNo.  4  could  increase  its  deposit  rate  to  four  per  cent  is 


IfO 


BANKING  PRINCIPLES 


if 


due  to  several  reasons,  all  more  or  less  temporary. 
In  the  first  place,  the  net  profits  for  1912  happen  to  be 
unusually  large;  secondly,  the  ratio  of  capital  to  total 
deposits  is  small  (column  No.  1);  and,  lastly,  the 
interest-bearing  deposits  are  only  slightly  over  50  per 
cent  of  the  total  assets  (colunm  No.  2).  Similarly, 
only  two  of  these  banks  could  afford  to  increase  their 
rate  on  deposits  to  8%  per  cent,  but  would  have  prac- 
tically nothing  left  for  even  ordinary  appropriations 
for      :erve,  depreciation  and  the  like. 

23.  Profits  of  the  "Percentage  Bank*'— Ref erring 
to  the  statement  of  the  "Percentage  Bank"  given  on 
page  90  the  foUowipT  profit  and  los:,  sheet  of  that 
bank  may  prove  of  In   i  ist: 

Per  cent 

of  Total  Per  cent 

Liability  of  Total 

to  Public  Assets 

The  net  profits  for  the  year 

after  providing  for  all  bad 

and  doubtful  debts  amount 

to 1.88  l.«2 

Dividends   paid 

Written  off  bank  premises . . . 
Transferred  to  rest  account.  - 
Transferred  to  pension  fund 
Balance  carried  forward. . . . 

The  net  profit  is  found  after  paying  all  the  current 
expenses  of  the  bank  for  the  year,  and  providing  for 
any  loss  from  bad  or  doubtful  debts.  The  sharehold- 
ers do  not  by  any  means  get  the  whole  of  the  net  prof- 
its, only  a  little  over  50  per  cent  of  the  amoimt  being 


.72 

.64 

.15 

.18 

.16 

.14 

.02 

.02 

.33 

.29 

BANK  STATEMENTS  Ijjl 

paid  in  dividends,  equal  to  10  per  cent  on  the  capital 
oTSy,  per  cent  on  the  capital  and  reserve  combined. 
Of  the  balance  about  11  per  cent  is  apphed  to  writing 
off  bank  premises  account,  12  per  cent  is  transferred 
to  reserve  or  rest  account,  a  small  amount  to  the  pen- 
sion fund  of  the  bank,  and  24  per  cent  is  carried  for- 
ward m  the  shape  of  undivided  profits  for  contin- 
gency. 

24.  Bank  premises,— Jt  is  a  sound  theory  in  busi- 
ness life  that  no  plant  or  building  should  be  carried  at 
cost  on  the  books  of  an  institution  for  any  great  length 
of  time,  but  that  each  year  a  certain  amount  should  be 
written  off  for  depreciation.    This  practice  is  fol- 
lowed by  aU  weU-managed  banks.    It  must  be  remem- 
bered m  this  connection  that  no  matter  how  suitable  a 
buildmg  may  be  for  banking  purposes,  it  would  not 
be  very  suitable  for  any  other  business  and  at  a  forced 
salemighi        realize  much  more  than  the  value  of  the 
land     Roughly,  the  depreciation  in  the  statement  un- 
der  discussion  amounts  to  five  per  cent  of  the  bank 
premises  and  absorbs  11  per  cent  of  the  net  profits. 

25.  Reserve  fund.— The  rest,  or  reserve,  fund  of  a 
bank  is  now  looked  upon  in  the  light  of  a  greater  mar- 
gin of  safety  to  the  depositors,  and  the  aim  of  every 
bank  is  evidently  to  make  the  reserve  fund  equal  to 
the  capital.  The  original  purpose  of  the  rest  fund 
was  to  accumulate  the  surplus  profits  of  good  years 
for  use  in  leaner  years  to  maintain  dividends  and  the 
like,  if  necessary.  Today,  however,  any  impairment 
of  the  rest  fund  would  be  consiaered  ahnost  as  serious 


i  I 


IM  BANKING  PRINCIPLES 

a  step  as  the  wiping  out  of  part  of  the  capital  itself. 
The  original  intention  of  the  rest  fund  is  now  fulfilled 
by  the  maintenance  of  a  larger  amount  in  undivided 
profits,  which  serves  exactly  the  same  purpose. 

The  rest  account  in  a  Canadian  bank  may  therefore 
be  considered  as  intended  for  the  protection  of  the  pub- 
lic, and  the  undivided  profits  for  the  protection  of  the 
shareholders. 

In  the  present  instance  about  12  per  cent  of  the  net 
profits  is  used  to  increase  the  reserve,  making  the  latter 
80  per  cent  of  the  capital. 

26.  Gross  profits. — It  has  already  been  pointed  out 
that  the  greater  portion  of  a  bank's  profits  is  derived 
from  the  difference  between  the  interest  on  its  deposits 
and  its  loans.  The  gross  profit,  therefore,  can  be 
found  roughly  by  a  study  of  the  interest-bearing  as- 
sets of  a  bank  and  it  may  be  safely  assumed  that  even 
in  the  best  of  years  a  bank  can  seldom  make  more 
than  between  five  and  six  per  cent  gross  on  its  total 
assets;  that  is,  inclusive  of  exchange  and  all  other 
profits.  In  the  statement  of  the  "Percentage  Bank" 
the  interest  earned  on  the  various  assets  may  be 
roughly  estimated,  as  follows: 

Securities     $7.59  at  H%  .84 

Call  Loans    8.97      5%  .46 

Current  Loans 63.00      6%  8.78 

Real  Estate 2.07      5%  .10 

Sundry   Profits,  Ex- 
change, etc J^ 

Making  a  Total  of  6.25  or  6i% 


BANK  STATEMENTS  Ijg 

Turning  to  the  liability  side,  $88.81  is  due  to  the 

bearing,  absorbing  $1.80  of  the  gross  profits.  The 
actual  ne  profits  are  $1.22.  The  difference,  or  $2.23! 
has  therefore  been  used  for  expenses,  including  Mow. 

tTnlft  t  ''*''*'•  '^'^  ««""='  •'^  "f  "'-^  in- 
ended  to  be  suggestive,  not  conclusive.     So  many 

features  enter  mto  expense  distribution  and  the  gross 

earnmgs  of  banks  that  it  is  impossible  to  establish  any 

amount  of  their  expenses,  but  this  serves  no  useful 
impose  unless  other  data  arc  also  furnished.  The  fact 
remains  that  Canadian  banks  are  confronted  withl 
very  serious  and  steady  diminution  in  net  profits  owing 
to  competition  on  the  one  hand,  and  constantly  in- 

other.  This  situation  must  be  met  either  by  increasing 
the  charges  or  decreasing  the  expenses.  The  former 
.s  a  last  resort  and  there  remains  the  necessity  for  a 
systematic  study  of  costs  with  a  view  to  reducinir  ex- 

'^Z\r\:l!"ru"^  ""^""'^  •"  transalions 
which  have  hitherto  been  a  source  of  loss. 

REVIEW 
Wl.t  i,  .  b.nk  .tatemenl  primarily  intended  lo  ,Ii„w' 

How  will  the  central  irold  reserve  nff^r*  th^  .*     j    j    i. 

" "Hot  t  f.r.l°'  •  ^"^  'n  .^n.*!;?e,ter '•"'  °'  ~"- 
"ow  may  ,  banks  gross  proSts  be  determined? 


. 


'^m-ir 


PART  II 
BANKING  PR.:  ^TICE 


fii 


I 

c 

0 


b; 
a] 
ai 
is 
th 
vo 


BANKING  PRACTICE 

CHAPTER  I 

HEAD  OFFICE 

1.  Directora.—The  nominal  executivp.  «f  .  k     i 
are  the  president  »d  board  o~ lors  Vho  ?^ 
responsible  not  only  to  the  shareho^  J  t^  Z 

-U.1  wor.  of  a^SatiJ^hrt^^t  tZr  J: 
fte  general  manager  and  his  staff.  The  wori^of  th^ 
^rs«  rather  of  an  advisory  and^  IL^^r^^J,^ 

certa-n  terms,  both  by  the  Bank  Act  and  by  pubhc 
The  president,  as  chairman  of  the  hn«vA  r.f  a- 

".d  ~  T  ""^  <"•"  «"»™»d  public  attention 
Tnhr  ^"  .  "  '^'*'^  °^  ''"  position  the  president 
s  obhged  to  devote  more  of  his  time  to  the  IffT^l 

olSel'".'"  "'f'^  '^''^°"'  upo^  him  de. 
volv^  the  checkmg  and  sfening  of  the  bank  return. 


I 


128 


BANKING  PRACTICE 


III 


and  other  official  documents.  Daily,  in  conjunction 
with  the  general  manager,  he  must  review  the  po- 
sition and  genera!  policy  of  the  bank. 

Of  recent  years  the  public  has  demanded  "directors 
who  direct."  No  man  should,  therefore,  accept  a  po- 
sition on  the  board  of  a  bank  unless  he  is  prepared 
not  only  to  attend  the  meetings  regularly,  but  also  to 
take  sufficient  time  to  become  acquainted  with  bank- 
ing  in  general  and  the  affairs  of  his  own  bank  in  par- 
ticular. In  other  respects  a  director  should  be  a  man 
of  outstanding  qualifications,  especially  as  regards 
charact:-  and  influence  in  the  community;  he  should 
also  be  a  man  of  large  business  affairs  and  a  good 
judge  of  men. 

The  principal  duty  of  the  directors  at  ordinary 
board  meetings  is  to  discuss  with  the  general  manager 
and  authorize  all  credits  and  loans  which  exceed  a 
certain  amount.  This  amount  or  limit  is  set  by  the 
directors  themselves,  as  it  would  be  physically  im- 
possible for  the  board  to  deal  with  all  the  loans  made 
by  a  bank.  The  majority  of  these  can  sufely  be  left 
to  the  judgment  of  the  general  manager,  leaving  the 
large  and  important  accounts  for  the  careful  consid- 
eration of  the  board. 

There  are,  of  course,  some  losses  in  small  loans. 
But  the  supervision  of  the  directors  would  not  avert 
them,  and  the  average  is  never  high  enough  to  be 
serious.  It  is  the  larger  loans  which  call  for  the  con- 
stant and  careful  attention  of  the  directors.  Experi- 
ence shows  that  bank  failures  arise  invariably  from 


HEAD  OFFICE 


1S9 


losses  made  by  the  failure  of  a  small  number  of  large 
accounts,  and  never  from  any  trouble  caused  by  the 
smaU  accounts.  The  limit  varies  from  $1,000  in  a 
small  bank,  to  $5,000  or  $10,000  in  a  large  bank.  In 
settmg  the  amount,  the  directors  are  guided  by  their 
opmion  of  and  confidence  in  the  general  manager  and 
his  staff,  as  well  as  by  the  volume  of  applications  call- 
mg  for  consideration. 

Board  meetiH^s  are  held  once  a  week  and  a  finan- 
cial statement  of  the  affairs  of  the  bank  as  well  as 
a  report  on  all  important  transactions  that  have  taken 
place  smce  the  last  meeting  is  placed  before  them. 
In  some  banks  a  list  of  the  smaller  loans  authorized 
by  the  general  manager  during  the  week  is  submitted 
and  mitialed  by  the  directors  after  reading.  The 
duties  and  responsibilities  of  the  president  and  direc- 
tors are  outlined  in  the  Bank  Act,  to  which  reference 
is  made  m  Chapter  III,  Part  I  of  this  Text. 

2.  General  manager.— The  general  manager  oc- 
cupies the  most  important  position  in  the  bank.    To 
attain  that  rank  a  man  must  not  only  be  a  pro- 
fessional banker  by  training  and  instinct,  but  must 
possess  other  outstanding  qualifications.     His  duties 
are  numerous  and  the  responsibihty  heavy.     To  assist 
the  general  manager  in  his  work  of  supervision  and 
control,  there  is  a  head  office  staff  of  highly  trained 
men.     If  the  bank  is  large,  an  assistant  general  man- 
ager is  generally  appointed  to  assist  the  general  man- 
ager, and  to  a  certain  degree  share  some  of  the  re- 
sponsibility. 


.  -  I  ti 


130 


BANKING  PRACTICE 


The  foUowin^r  officers  are  generaUy  found  on  the 
head  office  staif  of  a  bank: 

An  assistant  general  manager 

A  superintendent  of  branches 

A  chief  inspector  and  officers  under  nim 

A  secretary  and  staff 

A  chief  accountant  and  staff. 

8.  Superintendent  of  branches.—This  officer,  in 
conjunction  with  the  inspection  department,  exer- 
cises a  strict  supervision  over  all  branch  loans,  not 
only  by  a  careful  study  of  the  branch  returns,  but 
also  by  examining  and  passing  on  all  the  applications 
for  credit  submitted  by  the  branches.     He  prepares 
for  the  board  of  directors,  with  his  recommendation, 
aU  applications  for  credit  which  are  large  or  impor- 
tant enough  to  be  brought  before  them,  and  assists 
the  general  manager  in  the  disposition  of  the  less  im- 
portant applications.     Altho  the  greater  part  of  the 
superintendent's  work  consists  in  dealing  with  the 
branch  loans,  he  has  many  other  duties  to  perform 
m  connection  with  his  position,  and  is  in  frequent 
consultation  with  the  general  manager  regarding  the 
pohcy  and  position  of  the  bank.     The  office  is  a  most 
important  one  and  calls  for  special  qualifications  and 
training. 

In  a  large  bank  with  numerous  branches,  it  would 
be  physically  impossible  for  one  man  to  review  the 
work  of  the  whole  bank  in  this  manner,  and  many  of 
the  banks  divide  their  branches  into  provinces  or  dis- 


HEAD  OFFICE  Igj 

Wets  under  the  charge  of  district  superintendents. 
As  each  of  these  officers  has  from  fifty  to  one  hundred 
branches  to  look  after,  the  position  of  district  or  pro- 
vincial superintendent  is  also  an  important  one 

In  a  small  bank  the  offices  of  superintendent  of 
branches  and  chief  inspector  are  often  merged  into 
Z'.Tf-  Z°'^  '•»  inducted  by  the  general  mana- 
ger and  mspector.  In  the  larger  banks,  however,  the 
loans  can  only  be  comprehensively  dealt  with  by  a 
process  of  sifting  and  elimination,  according  to  size 
»d  unportance.  All  loans,  irrespective  of  amomit, 
we  subject  to  constant  supervision  both  in  returns  of 
the  branch  and  by  regular  inspections.  In  the  grant- 
ing of  these  loans,  however,  conditions  vary  accord- 

a  hmit  up  to  which  he  may  lend  without  direct  refer- 
ence to  the  head  office,  the  amount  varying  with  the 

ov^TblT^^rT'  "^  '!^'  '"'"<=''•  For  aU  amounts 
over  th  s  hmit,  the  application,  with  full  particulars 
and  statements  must  be  sent  to  the  superintendent  of 
Uie  district  and  a  copy  of  the  correspondence  to  the 
h  ad  office  The  district  superintendent  in  his  turn 
has  a  Imut  to  the  amount  he  can  authorize.    If  a  pro- 

ZtTu  T  «  "*^'  *'"'"  ^^  ■=*"  *«'  '^i*'  he  writes 
othpl;  l''^'^'/'~'™"*"*"8  the  application  or 
ofrr;     1  '""^  f "'  "^""^^  ^^e  in  possession 

^  I  if  i"!^"^  ^^  *''*  ^'"^  °^  *«  application 
«  dealt  with  by  the  superintendent  in  the  usual  way. 
«nd  either  authorized  forthwith  by  the  general  mana- 
ger or  referred  to  the  board. 


! 


f  i 


m^ 


132 


BANKING  PRACTICE 


4.  Chief  inspector.— As   has   been   indicated,   in 
some  banks  this  office  is  combined  with  that  of  the  su- 
permtendent,  the  work  being  so  intimately  connected. 
Ihe  chief  inspector  gives  special  attention  to  the 
auditmg  and  mspection  of  the  branches  and  sees  that 
every  branch  is  inspected  at  irregular  intervals  at  least 
once  a  year.    As  a  rule  he  personally  conducts  the 
mspection  of  the  larger  branches  and  supervises  and 
directs  the  other  inspectors  in  their  examination  of 
the  rest  of  the  branches.    An  inspection  consists  of 
two  kinds  of  examinations,  namely,  verification  and 
valuation.     The  first  is  called  the  audit  or  routine 
inspection,  and  consists  of  auditing  and  balancing  the 
books  of  a  branch  and  ascertaining  the  existence  of 
all  the  assets  caUed  for  by  the  books.     Attention  is 
also  given  to  the  general  routine  work  of  the  office 
with  a  view  to  ascertaining  if  instructions  from  the 
head  office  are  faithfully  observed.     This  is  the  first 
stage  of  the  inspection,  and  is  made  by  routine  in- 
spectors or  officers. 

The  second  stage,  or  inspection  proper,  is  made  by 
a  senior  mspector  and  consists  of  a  thoro  analysis 
and  valuation  of  the  loans  and  other  assets  of  the 
branch.  This  is  not  necessarily  made  at  the  same 
time  as  the  audit,  but  the  inspector  visits  the  branch 
as  soon  as  possible  afterward  and  discusses  every  ac- 
count exhaustively  with  the  manager.  On  his  return 
to  the  head  office  he  embodies  his  criticisms  in  the 
official  correspondence  with  the  branch. 

The  chief  inspector  generally  has  in  his  charge  all 


HEAD  OFFICE  igg 

matters  pertaining  to  bookkeeping  methods,  disposi- 
tion  of  the  junior  staff,  stationery  forms,  bank  premi- 
ses furmture.  etc.  Of  course  he  can  delegate  any 
of  these  to  the  care  of  one  of  the  inspectors 

the  head  office  ,s  an  efficient  secretary  with  initia- 
tive,  tact  and  a  good  memory.     The  secretary-  forms 
the  connectmg  link  between  the  different  depart- 
ments, and  thru  his  hands  passes  all  the  correspond- 
ence received  or  despatched  by  the  head  office.     He 
IS  therefore  in  touch  with  any  question  that  may  be 
under  discussion  with  any  of  the  branches,  and  if 
possessed  of  a  good  memory  is  frequently  able  to 
refer  the  general  manager  or  inspectors  to  similar  in- 
stances that  have   occurred  in   the   past   at   other 
branches.     The  secretary  generally  has  charge  of  the 
bank  advertising,  and  deals  with  all  minor  matte.-s 
that  do  not  fall  within  the  province  of  the  other  de- 
partments. 

The  general  diary  of  the  bank  is  kept  by  the  sec- 
retary, who  sees  that  all  the  returns  called  for  by  the 
Bank  Act  are  promptly  dispatched,  dividends  and 
meetings  duly  advertised,  and  any  court  or  legal  busi- 
ness looked  after  by  the  officer  appointed  to  appear. 
e   Chef    accountant-This    officer,    tho    seldom 
heard  of  by  the  public,  fills  a  most  important  place  in 
the  bank,  as  he  is  required  by  the  Bank  Act  to  join 
with  the  president  and  general  manager  in  certifving 
to  the  correctness  of  the  returns  made  to  the  govern- 
ment.    It  IS  his  duty  to  combine  the  branch  balance 


-i--^^' 


184 


BANKING  PRACTICE 


sheets  so  as  to  show  the  position  of  the  bank  as  a 
whole,  and  submit  a  true  copy  to  the  directors  every 
week,  to  the  government  every  month  and  to  the 
shareholders  every  year.  The  stock  ledger  and  trans- 
fer book  are  imder  his  charge,  as  are  also  all  special 
accounts  such  as  the  pension  and  guarantee  funds  of 
the  bank. 

It  will  be  gathered  from  the  above  that  not  only  is 
the  general  manager  himself  thoroly  in  touch  with 
the  affairs  of  the  bank,  but  he  has  also  a  highly  effici- 
ent staff  about  him,  all  able  to  make  helpful  sug- 
gestions and  if  necessary  to  take  the  initiative  in  any 
matter.  Each  has  his  own  well-defined  duties,  yet 
is  able  to  assume  any  other  work  if  called  upon,  and 
all  are  imbued  with  one  common  aim,  the  well-being 
of  the  bank. 

REVIEW 

What  arc  the  principal  duties  of  a  bank  director? 

What  are  the  duties  of  the  superintendent  of  branches?  How 
does  he  regulate  loans  made  at  the  branches? 

In  what  respects  is  the  secretary  one  of  the  most  useful  officers 
of  the  head  office? 

What  are  the  duties  of  the  chief  accountant  ? 


CHAPTER  II 

HEAD  OFFICE  RECORDS 

1.  Head  oiJice  bookkeeping. -A  distinction  must 
be  made  between  the  head  office  and  the  main  office  of 

'ffi  V  A^'?"^  °^'^  ''  ^*^*y^  ^^^'^t  *he  executive 
office  of  the  bank,  while  the  main  office,  tho  generally 
in  the  same  bmlding,  is  simply  a  branch  office.  Not- 
withstandmg  its  size  and  importance,  its  relations  to 
head  office  are  exactly  the  same  as  the  most  distant 
branch  so  far  as  routine  matters  and  operations  are 

.wH        m'  ''"T'^'  ^^^"  *^«*  ^'  °*»^^^  branches, 
s  with  the  public.     The  head  office,  on  the  other  hand 

transacts  no  actual  business  with  the  public,  and  its 
bookkeeping  consists  principally  of  combining  and 
analyzing  ihe  statements  sent  in  from  the  various 
branches.  Practically  all  this  work  is  done  in  the 
chief  accountant's  department.  The  machinery, 
however,  is  suprisingly  simple  considering  the  work 
It  accomplishes. 

The  iminediate  books  of  the  head  office  consist  of  a 
general  ledger,  a  cash  book,  a  correspondents'  ledger 
with  controlling  account  in  the  general  ledger,  and 
the  stock  transfer  books. 

2.  General  ledger.~The  head  office  general  ledger 
contams  accounts  for  all  the  assets  and  liabilities 
ot  the  bank  which  are  not  included  in  the  branch 

135 


nnl; 


186 


BANKING  PRACTICE 


-  g 


statements:  such  as  capital,  surplus,  undivided  profits, 
head  office  investments,  general  expense  account  and 
the  like. 

At  the  end  of  each  month  every  branch  sends  in  an 
exact  balance  sheet  of  its  general  ledger.  These 
statements  are  all  summarized  in  sp^jcially  ruled  books 
or  sheets  under  the  various  he&ijngs  of  the  accounts, 
and,  when  combined  with  the  balance  sheet  of  the 
head  office  general  ledger,  give  the  complete  state- 
ment of  the  bilk's  business  required  by  the  Bank 
Act. 

Attenli  a  is  called  to  the  fact  that  after  allowing 
for  the  amount  due  to  or  from  the  head  office  itself, 
the  combined  debit  and  credit  balances  of  all  branch 
clearing  accounts  (Pages  177-179)  will  exactly  oflFset 
each  other  with  the  exception  of  the  items  in  transit. 
These  outstanding  items  are  analyzed  and  allotted  to 
their  several  destinations  or  accounts,  and  there  is 
consequently  no  branch  clearings  account  balance 
shown  in  either  the  government  report  or  the  annual 
reports. 

8.  Correspondents*  ledgers. — Every  bank  finds  it 
necessary,  for  exchange  and  other  purposes,  to  carry 
accounts  with  correspondents  in  Great  Britain,  the 
United  States  and  other  parts  of  the  world.  For 
simplicity  and  directness  of  accounting  some  of  these 
accounts  are  frequently  carried  at  the  head  office,  and 
the  various  debits  and  credits  from  the  branches  are 
passed  thru  the  branch  clearings  account  as  later  ex- 
plained (Section  18,  Chapter  IV).     As  the  entries 


HEAD  OFFICE  RECORDS  137 

reach  the  head  office  they  are  posted  direct  from  the 
slips  to  the  several  bank  accounts  in  a  special  ledger, 
statements  of  the  accounts  are  received  from  the  vari- 
ous correspondents  weekly,  and  in  many  cases  daily, 
and  the  accounts  are  kept  in  constant  adjustment— 
any  item  outstanding  an  undue  length  of  time  being 
made  the  subject  of  immediate  inquiry. 

4,.  Statistical  books.-Ap&rt  from  the  sharehold- 
ers ledger  and  the  stock  transfer  books  which    for 
convenience  to  the  public,  are  generally  kept  in  the 
mam  office,  all  the  books  used  in  the  head  office  are 
prmcipally  of  a  statistical  or  analytical  nature.     The 
profit  and  loss  returns  from  the  different  branches 
are  all  carefully  analyzed  in  relation  to  the  amount 
of  business  done  and  the  capital  employed.    Daily 
circulation  returns  are  compiled,  and  a  close  watch 
kept  on  the  movement  of  the  bank's  liquid  assets. 
S>pecial  funds,  in  connection  with  guarantees,  pen- 
sions and  the  like,  are  also  administered  from  this 
department. 

5.  Branch  clearings.— The  checking  of  the  branch 
c  earmgs  statements  received  from  the  branches  is 
also  m  charge  of  the  chief  accountant.     The  method 
IS  very  simple.     An  ordinary  filing  dip  is  kept  for 
each  branch;  when  a  statement  is  received,  the  entries 
are  ticked  off  as  far  as  possible  against  the  entries  on 
other  branch  statements,  and  it  is  then  filed  on  its  clip 
to  await  delayed  corresponding  entries.  As  the  entries 
on  each  sheet  are  completely  marked  off,  a  diagonal 
line  IS  drawn  across  the  statement,  and  whenever  a 


1S8 


BANKING  PRACTICE 


Irfl^ 


It  II. 


a  8 


balance  is  struck  by  the  department  these  dead  sheets 
are  filed  away  in  bundles.  Some  banks  arrange  the 
clips  m  alphabetical  order,  but  the  best  way  is  to 
arrange  them  first  by  provinces,  as  naturally  the  ma- 
jority of  the  entries  are  between  branches  in  the  same 
provmce.  The  checking  is  also  more  concentrated 
under  the  latter  system. 

6.  Stock  hooka,  etc.— In  the  shareholders*  or  stock 
ledger  an  account  is  kept  with  each  shareholder  in 
which  are  recorded  aU  shares  bought  and  sold.  The 
amounts  entered  in  the  account  represent  the  par 
value  of  the  shares,  and  the  sum  of  all  the  balances 
m  this  ledger  will  equal  the  amount  of  the  paid-up 
capital  of  the  bank. 

The  shares  of  a  bank  are  transferable  only  on  the 
books  of  the  bank;  these  are  known  as  "Transfer 
Books."    Each  page  of  the  transfer  book  is  in  the 
form  of  a  legal  document  by  which  one  person  agrees 
to  transfer  a  certain  number  of  shares  standing  in  his 
name  to  another  person  who  agrees  to  accept  the 
shares.     The  transfer  must  be   executed   by  both 
parties  in  person  or  by  a  properly  executed  power  of 
attorney  appointing  some  one  to  act  for  them.    The 
entries  in  the  stock  ledger  are  made  direct  from  the 
transfer  book. 

The  other  books  used  in  the  stock  department  are  a 
"Register  of  Stock  Certificates  Issued"  and  a  "Divi- 
dend Register."  The  stock  certificates  issued  are  not 
transferable  and  need  not  be  presented  when  a  trans- 
fer is  made. 


HEAD  OFFICE  RECORDS 


139 

aena  register  is  simply  a  record  nf  fi,« 

amounts  of  checks  issued  P'^"*'  ""* 

A  bank  may  keep  transfer  reflister<i  in  „n, 
mces  than  that  in  which  the  hf  H  .«  °  ■.  ^'°'" 
The  books  consist  of  a  stock  le<W  /'^'^  l"  '"*""^''- 
kept  at  the  head  offic:)?Swh^fL  keptTrf  '"? 
of  shareholders  residing  v^sZZtu  "'P*.*'"'  accounts 
fer  book  and  a  "LiSf  "f  ?  t'  ^"°^""^'  "  *"»'" 
The  head  offlce"  rfd^^c/rSHf  ^t'  T' " 


n 


ill  ^ 


140  BANKING  PRACTICE 

Part  of  this  amount  would  be  represented  by  notes 
on  hand  in  the  head  office,  part  by  notes  in  the  branch 
tills,  and  the  balance  would  represent  the  amount  of 
circulat'  '  .tanding. 

At  cred.  te  account $6,000,000 

Lett: 

Unsio         ^     -s $500,000 

Soiled    and    mutilated    notes 

awaiting  destruction 400,000 

Notes  held  in  the  tills  of  the 

branches    1,400,000 

$2,300,000        2,300,000 

Total  amount  of  outstanding  cir- 
culation in  the  hands  of  the 
P"*»Jic    $2,700,000 

This  leaves  a  margin  of  $300,000  unissued,  the 
difference  between  authorized  and  actual  circula- 
tion. 

Changes  in  bank  note  account  are  infrequent  and 
occur  only  when  notes  received  from  the  engraver 
are  credited,  or  when  a  debit  entry  is  made  of  the 
amount  of  mutilated  bills  destroyed  by  the  directors. 

Soiled  and  mutilated  notes  are  counted  and  burned 
by  the  directors  whenever  a  sufficient  quantity  has 
accumulated.  A  special  furnace  is  used  for  this  pur- 
pose, and  as  soon  as  the  bills  are  counted  they  are 
placed  in  the  furnace  by  the  directors,  where  they  are 
rapidly  consumed.  A  statement  showing  the  amount 
and  denomination  of  the  notes  destroyed  is  then 


HRAD  OFFICE  RECORDS  141 

signed  by  the  directors  to  be  attached  to  the  monthly 
circulation  return.  '""uiniy 

In  the  note  circulation  register,  a  complete  record 
of  the  various  issues  is  kept,  as  well  as  of  all  the  de- 
nommations  of  the  notes  themselves. 

8   «.W  to  Head  office.-Eyery  branch  sends 
to  «.e  head  office  a  number  of  statements  and  returns. 
These  statements  go  under  different  names  in  the 
v«..ous  b«As  tho  they  vary  but  httle  in  their  in- 
tention and  m  the  information  conveyed.    It  is  most 
unporlant  that  all  returns  should  hi  carefully  pre- 
pared and  legibly  written  by  the  branch.    An  error 
m  any  one  of  them  is  serious;  it  involves  the  head 
office  m  a  great  deal  of  unnecessary  work  in  locating 
the  difference  and.  obviously,  is  a  serious  reflection 
on  the  ability  of  the  officers  whose  signaturesTtes" 
the  correctness  of  the  figures.    The  principal  ^a  e- 
ments  are  as  follows: 

9.  Branch  cUaring,  rtatement  (daily). -The 
branch  clearing  statement  is  forwarded  to  the  hiad 
dfv  h^  Z"  1  *,'  ^^^'''^""theprevious  business 

0   K«»    •  Tr/"  •""""'""  "^  '"'  correctness, 
bv  fh.  1  »''"^»'««*— This  is  forwarded  daily 

it  IS  practically  a  balance  sheet  of  the  branch  sen- 
eral  fedger,  either  in  exact  figures  or  approxSiateW 

menlTh     wTf "    ^'  ^  ^P"'*""'  "-at  this  stated 
ment  should  he  despatched  promptly,  as  the  daU  are 


i  '    ' 

m 

5m 


w 


»» 


14S 


BANKING  PRACTICE 


necessary  to  the  chief  accountant  in  arriving  at  the 
amount  of  circulation  outstanding  and  the  general 
movements  of  the  bank's  assets  and  liabilities.  A 
complete  balance  sheet  is  rendered  on  the  last  day  of 
the  month. 

11.  Discount  report. — In  some  banks  this  is  sent  in 
daily,  and  in  some  weekly.  If  sent  in  daily,  it  gen- 
erally takes  the  form  of  a  carbon  copy  of  the  discount 
register,  with  the  manager's  comments  or  explana- 
tions of  the  different  ti«nsactions.  If  a  weekly 
statement,  only  transactions  above  a  certain  amount 
are  reported.  The  limit  varies  with  the  importance 
of  the  branch.  All  overdrafts,  no  matter  how  small, 
are  reported  with  explanations.  All  liability  ac- 
counts in  the  branch  which  are  out  of  order  in  any 
way,  either  by  the  expiration  of  the  credit  or  for  other 
reasons,  are  listed  in  each  report  until  they  have 
been  adjusted  to  conform  to  head  office  require- 
ments. 

12.  Cask  item  account. — This  return  is  made  up 
at  least  once  a  month  and  gives  the  outstanding  sight 
drafts  and  other  cash  items  with  the  date  of  origin 
and  domicile.  A  special  report  should  be  given  on 
any  item  which  appears  to  be  too  long  outstanding, 
thus  anticipating  inquiries  from  the  head  office. 

18.  Balance  sheet. — This  is  made  up  to  the  close 
of  business  on  the  last  day  of  the  month,  and  mailed 
to  the  head  office  not  later  than  the  following  business 
day.  It  is  an  exact  statement  of  the  general  ledger 
of  the  branch,  and  is  used  by  the  head  office  in  com- 


HEAD  OFFICE  RECORDS  143 

piling  the  general  statement  of  the  bank,  or  monthly 
return  to  the  government,  as  it  is  generally  called 

14.  Overdm  billa.-This  statement  is  required  at 
east  once  a  month,  and  gives  a  list  of  aU  overdue 

loans  and  discounts.  It  should  be  the  ambition  of 
every  manager  to  keep  this  list  down  to  a  low  point, 
if  not  entirely  to  eliminate  it.  Any  name  which  ap- 
pears frequently  in  this  list  should  be  avoided;  it 
shows  a  lack  of  business  honor,  or  something  worse. 

15.  Monthly  liabiUty  retum.-This  return  gives  a 
^st  of  aU  the  liability  accounts  on  the  books  of  the 
branch  over  a  certain  amount  with  all  necessary  par- 
ticulars regarding  security,  etc.  Some  banks  require 
the  monthly  hability  return  to  contain  the  name  of, 

obii  rr""*' "°  '"''"^''  ^""^  '""*"'  ^"^  ^y  ^^^^y 

16.  Sundry  returns.— St&tements  of  the  expense 
account  of  each  branch,  accompanied  by  the  relative 
vouchers,  are  sent  every  month  to  the  head  office. 
The  closmg  of  the  books  at  the  end  of  :he  bank's 
fiscal  year  calls  for  a  number  of  returns  for  statistical 
and  other  purposes  such  as  the  profit  and  loss  state- 
ment, the  report  on  bank  premises,  the  bad  and  doubt- 
ful debts  return,  and  the  like.    In  addition  to  these, 

TnT!-  T  .'  °"/«"°"«  «"^j^^t«  n^ay  be  called  for 
from  time  to  time  by  the  head  office. 

CaL-^'f  ^^  '^'^''"*  ^"^  fe««^m.-In  discus.ing  the 
Canadian  banking  system,  frequent  reference  is  made 
to  the  very  full  knowledge  possessed  by  the  general 
managers  as  to  the  condition  and  requiremfnts  of 


I   f 


144 


BANKING  PRACTICE 


m 


the  country  as  a  whole.  This  information  is  acquired 
thru  two  separate  channels:  the  weekly  financial 
statement  and  the  weekly  report  on  business.  The 
weekly  financial  statement  from  the  different  branches 
shows  the  fluctuation  of  the  circulation,  loans,  de- 
posits, etc.,  thruout  the  country,  and  forms  an  ex- 
cellent financial  barometer  of  business  conditions. 
The  information  in  these  statements  is  supplemented 
by  weekly  or  fortnightly  letters  from  the  branch  man- 
agers which,  as  a  rule,  cover  the  ground  most  thoroly, 
and  give  a  variety  of  interesting  and  useful  facts. 
Among  other  things  with  which  the  letter  deals  may 
be  mentioned  the  following: 

(a)  Particulars  as  to  prices  and  movements  of  staple 
commodities  such  as  grain,  flour,  cattle,  dairy  produce,  lum- 
ber, etc. ; 

(b)  Acreage,  condition  and  prospects  of  crops,  etc.; 

(c)  Farm  sales  and  other  real  estate  transactions ; 

(d)  The  conditions  of  trade  locally,  scarcity  or  other- 
wise of  money,  general  financial  and  commercial  news ; 

(e)  Business  failures  or  indications  of  beginnings  of  un- 
soundness in  local  firms,  whether  customers  or  not ; 

(f)  Local  rates  for  money,  domestic  and  foreign  ex- 
change, etc. 

It  is  easily  seen  that  no  press  association  or  mer- 
cantile agency  could  possibly  give  the  intimate  in- 
formation as  to  the  country's  condition  thus  afforded 
the  general  managers  thru  the  branches.  By  means 
of  information  thus  regularly  afforded,  Canadian 
banks  are  able  to  see  the  coming  financial  clouds  six 


HEAD  OFFICE  RECORDS  i« 

months  or  even  a  year  before  they  appear  on  the  com- 
mercial horizon,  and  thus  not  only  to  take  the  nec^- 
sary  steps  to  prepare  themselves  for  trouble,  but  also, 
m  the  amiual  reports  of  the  bank,  to  warn  their  cus- 
13  "  ^"^^'  «'~""y  "f  ««=  approaching 

n,^^^.u"^^  i  '■'^"'"*  "W*— At  the  end  of  each 
month  there  IS  forwarded  to  the  head  office  a  eertifi- 
cate  signed  by  the  mmiager  and  accountant,  which 
certifies  to  the  following: 

That  all  the  general  statements  and  work  nf  «.-  „« 

^^arxr'^'^r? «''««' '""« ™»'h. 

;■,.♦(,.        5"  ''«'^"'«»  •hoim  in  the  deposit  ledeer  dur- 
CtTw  rf".«''*"^«»  by  the  mana^r,         ^ 

^^\Z^r       °'"*°"'"'  "  ""•"■  »  *'  '''"""^ 

de^rtl^tit""*!!!'"'''''.''*'™"  "  *'  ^"^o'""  «»d  ledger 
«Tco"Xt  Xe^°  -dependently  verified  by  .  se  Jnd 

That  aU  insurance  held  is  in  force ; 

^^^^^^^::::^ri:r.  "'^^  "^'  ^"'  *^"  ^'^ 

bilUy  lldt^hT"*  ^^P°"V^^'''  ^*^^"^  bank,  and  lia- 
W,tj  ledger  balances  were  drawn  ofF  and  found  to  be  cor- 

ballJc'if  "°*'''  ^^"''  *"^  ^°"^*^'-«^«  --^  -ventoried  and 

anJfhlf*?^  ^°""^*'°°  '««i«ter  has  been  regularly  checked 
Thi?       T  ^'"1  "°  unsatisfactory  outstanding  items  • 

JLlrot/elf  ^'  ^'  ™^^^"-^  ^-^  been^'.*:::;ined 
That  the  draft  account  has  been  balanced. 


146 


BANKING  PRACTICE 


m' 


The  dates  on  which  these  several  baknees  were 
arrived  at  are  given,  as  well  as  the  initials  of  the  offi- 
cer who  made  the  check. 

It  is  essential  that  a  complete  record  of  daily 
routine  work,  etc.,  should  be  maintained,  and  some 
banks  require  monthly  reports  from  their  branches 
giving  the  initials  of  the  officers  who  fulfill  the  various 
duties  each  day.  Even  if  this  report  is  not  required 
by  the  head  office  it  is  advisable  to  keep  a  systematic 
record  in  the  office. 


li  - 


REVIEW 

What  accounts  are  kept  at  the  head  office  of  a  bank? 

Who  keeps  the  circolation  records  of  the  bank? 

Who  makes  up  the  branch  clearing  statement?  How  often  is 
It  sent  to  the  head  office? 

Thrn  what  channels  does  the  general  manager  get  complete  in- 
formation about  the  branches? 

How  is  the  routine  work  reported  to  the  head  office? 


CHAPTER  III 

THE  BRANCH  STAFF 

1.  Manager.-The  directors  are  obliged  to  rely  on 
the  general  manager  to  a  great  extent  for  the  com- 
petent admmistration  of  the  bank's  affairs,  and  he 
m  his  turn  has  to  look  to  the  branch  managers  and 
their  staff  for  an  efficient  and  loyal  discharge  of 
duties,  for  on  the  staff,  more  than  on  any  other 
factor,  depends  the  success  of  the  bank. 

The  making  of  loans  is  a  corollary  of  having  the 
money  to  lend,  and  consequently  the  most  important 
work  of  a  manager  is  to  attract  and  accumulate  de- 
posits by  givmg  a  satisfactory  and  effcient  service  to 
customers  and  the  public  at  large.    There  is  no  diffi- 
culty  about  making  loans;  the  difficulty  is  to  know 
when  to  refuse  to  make  them.     The  head  office  can 
always  assist  in  the  decision,  but  the  manager  has  only 
he  general  standing  of  the  bank  and  his  own  efforts 
to  rely  on  for  obtaining  deposits.    The  value  of  a 
good  lendmg  branch  is  not  denied,  nor  the  fact  that 
oans  frequently  create  deposits;  but  banking  essen- 
tials  should  be  considered  in  their  proper  sequence; 
first,  deposits,  then  loans.    No  bank  would  open  a 
branch  simply  to  make  loans;  deposits  or  other  col- 
lateral  advantages  must  be  present  or  in  prospect. 


n 

fit 

If 

1 

1 

1 

'  ■ 

1 

(■  '■ 

1  ■  ■■  ' 

! 

* 

148 


BANKING  PRACTICE 


That  the  loans  at  a  branch  may  exceed  the  deposits 
does  not  alter  the  principle. 

To  attract  deposits,  personality,  efficient  service 
and  a  knowledge  of  human  nature  are  necessary,  but 
the  lending  of  money,  in  addition,  calls  for  a  high 
degree  of  tact,  ability  and  technical  training.  In 
small  transactions  the  manager  exercises  his  own  dis- 
cretion, within  certain  limits  established  by  the  head 
office  for  each  branch  or  manager.  Loans  exceeding 
this  amount  must  first  be  submitted  to  the  general 
manager  for  authorization.  The  requisites  of  a  good 
loan  will  be  dealt  with  in  another  chapter. 

The  manager  has  many  other  duties  and  responsi- 
bilities besides  obtaining  deposits  and  making  loans. 
He  is  expected  to  give  constant  and  vigilant  super- 
vision to  every  part  of  the  business  of  his  office,  and 
to  the  general  deportment  of  his  staflp.  The  fact  that 
he  is  permitted  by  the  head  office  to  delegate  a  certain 
portion  of  this  work  to  the  accountant  or  other  senior 
officer  does  not  relieve  him  of  the  responsibility  for 
an3rthing  that  goes  wrong. 

Except  at  the  small  offices  the  manager  is  not  ex- 
pected to  do  any  of  the  routine  work  of  entering  or 
posting,  but  he  has  a  good  deal  of  work  to  do  in 
connection  with  the  checking  of  the  day's  work. 

2.  Daily  work. — A  manager  will  find  it  of  great 
advantage  to  himself  and  his  staff  to  reach  the  office 
a  little  before  nine.  Not  only  can  more  work  be 
done  between  nine  and  ten  o'clock  than  in  any  other 


THE  BRANCH  STAFF 


149 


two  hours  of  the  day,  but  the  manager's  punctuality 
insures  a  h'ke  quality  in  the  staff. 

AU  checking  in  the  office  should  be  accomplished 
before  ten  o'clock  in  the  morning. 

The  manager  is  then  prepared  to  receive  and  inter- 
view customers,  and  his  desk  should  be  so  placed  that 
he  can  see  all  who  enter  the  office.    Both  the  manager 
and  the  accountant  should  be  constantly  on  the  alert 
to  see  that  every  customer  receives  prompt  attention. 
Durmg  the  day  the  manager's  time  is  fully  occupied 
with  preparing  applications  for  credit,  general  corre- 
spondence and  interviews  with  customers.     Much  of 
the  manager's  time  is  frequently  wasted  by  customers, 
and  offenders  in  this  respect  should  be  tactfully 
broken  of  the  habit.    Every  minute  of  the  manager's 
time  costs  money  to  the  bank— a  fact  frequently  over- 
looked by  both  the  customer  and  the  manager  himself. 
The  staff  of  a  Canadian  bank  are  designated  gener- 
ally as  officers,  irrespective  of  rank. 

3.  Accountant— The  position  of  accountant  is  a 
responsible  one.  As  lieutenant  or  deputy  of  the 
manager  he  is  frequently  caUed  upon  to  assume 
charge  of  the  office  whenever  it  may  be  necessary  for 
the  manager  to  be  absent,  to  which  end  he  should  be 
thoroly  acquainted  with  the  discounts  and  general 
busmess  of  the  office.  A  great  part  of  an  account- 
ant s  duties  consists  in  relieving  the  manager  of  the 
work  (but  not  the  responsibility)  of  looking  after 
the  routme  and  general  supervision  of  the  office. 


150 


BANKING  PRACTICE 


ft! 


•I: 


With  the  concurrence  of  the  manager  he  apportions 
the  work  among  the  staff,  clearly  defining  the  duties 
of  each  officer,  sees  that  prompt  and  becoming  atten- 
tion is  given  to  the  public,  devotes  such  direction  and 
teaching  to  his  subordinates  as  they  may  require,  and 
insures  that  all  work  is  punctually  performed,  and 
none  permitted  to  fall  into  arrears. 

The  accountant  is  generally  expected  to  check  all 
statements  and  returns,  to  see  that  nothing  has  been 
omitted,  and  to  sign  or  initial  them  in  attestation  of 
their  correctness,  prior  to  handing  them  to  the  mana- 
ger for  completion. 

The  accountant  jointly  with  the  manager  has  con- 
trol of  the  treasury  cash  and  other  valuables  of  the 
branch.  He  is  also  responsible  for  the  safe-keeping 
of  all  engraved  forms,  such  as  drafts,  money  orders, 
and  the  like. 

4.  Teller.~A  great  deal  of  responsibility  is  at- 
tached to  the  position  of  the  officer  who  has  charge 
of  the  cash,  and  known  as  teller.  His  principal 
duties  are  the  receiving  of  deposits  and  the  payment 
of  checks.  This  work  requires  great  care  in  order  to 
avoid  a  loss  to  himself  or  to  the  bank.  In  most  banks 
the  tellers  are  required  to  make  good  all  shortages  in 
the  cash.  When  cash  is  over,  however,  the  amount  is 
credited  to  an  accoimt  in  the  deposit  ledger  called 
"cash  over  account." 

In  a  small  office  the  duties  of  paying  and  receiving 
teller  are  fulfilled  by  one  man;  in  larger  offices,  how- 
ever, the  work  is  performed  by  two  or  more  tellers, 


THE  BRANCH  STAFF  151 

and  a  distinct  division  is  made  between  the  work  of 
receiving  and  paying. 

The  teUer  must  scrutinize  closely  all  rhecks  and 
cash  Items  which  are  included  in  the  deposit  in  order 
to  see  that  they  are  properly  indorsed  and  in  form 
as  o  dates,  amounts,  etc.  The  tot.l  is  then  entered 
n  the  teUers  blotter,  and  the  slip  is  handed  to  the 
ledger-keeper  who  posts  the  deposit  m  tl.o  ledL-r  ,nd 
enters  it  m  the  customer's  pass  book 

The  only  book  kept  by  the  teUer  is  the  l.ottcr  in 
which  all  debits  and  credits  passing  thru  his  hands 
are  entered.  It  has  various  columns,  in  which  the 
entnes  are  so  distributed  that  the  totals  can  he  used 
by  the  different  departments  in  proving  the  clay's 
work.  At  the  close  of  the  day's  business  the  cash  is 
balanced  and  the  details  of  the  various  denominations 
are  entered  in  the  space  provided  for  the  purpose  in 
the  teller's  balance  book. 

5.  Ledger-keeper.-A  good  ledger-keeper  should 
be  accurate,  quick  and  a  good  writer.  Accuracy  is 
the  most  important  qualification,  as  errors  in  posting 
or  m  extending  the  balance  of  an  account  might  re- 
sult in  a  loss  to  the  bank. 

A  ledger-keeper  should  be  thoroly  familiar  with 
the  signatures  of  the  bank's  customers,  and  be  con- 
stantly on  the  alert  to  detect  forgeries  and  other  ir- 
regularities. 

When  opening  a  new  account  care  should  be  taken 
to  record  in  the  ledger  all  the  necessary  particulars, 
in  the  case  of  accounts  with  partnerships,  societies. 


15t 


BANKING  PRACTICE 


'H  -f 


m 


corporations,  etc.,  both  the  manager  and  ledger- 
keeper  should  see  that  the  necessary  authorization 
and  other  documents  are  lodged  with  the  bank. 

Particular  care  must  be  taken,  when  "marking"  or 
accepting  checks,  to  see  that  they  are  not  written  in 
such  a  way  that  they  can  subsequently  be  changed  to 
a  larger  amount.  If  there  is  any  space  left  on  either 
side  of  the  written  amount,  it  should  be  filled  in  with 
a  heavy  stroke  of  the  pen. 

6.  Collection  clerk. — The  collection  department 
is  considered  one  of  the  most  important  in  connec- 
tion with  the  business  of  the  bank,  a;  id  the  clerk  in 
charge  of  this  work  must  be  careful  and  methodical 
in  his  work,  and  constantly  on  the  aler; .  ^o  see  that 
all  the  details  in  connection  with  each  item  passing 
thru  his  hands  are  promptly  and  carefully  looked 
after. 

At  most  branches  of  the  bank  the  larger  part  of  the 
items  received  for  collection  come  thru  the  mails  from 
other  branches  and  correspondents,  and  the  majority 
of  these  are  drafts  on  local  merchants  which  require 
to  be  presented  for  acceptance.  The  instructions 
wliich  accompany  these  items  must  be  noted  and  care- 
fully followed.  Items  which  are  to  be  protested  for 
non-acceptance  or  non-payment  require  special  at- 
tention, as  the  bank  could  be  held  responsible  for  any 
loss  if  the  instructions  are  not  carried  out  to  the 
letter. 

As  the  bank  should  not  hold  a  collection  unac- 
cepted more  than  two  days  if  the  drawee  resides  in 


THE  BRANCH  STAFF 


108 


town,  or  over  five  days  if  he  resides  out  of  town,  it 
is  necessary  to  obtain  the  acceptance  without  delay  or 
return  the  item  with  or  without  protest,  as  the  case 
may  be.  It  is,  of  course,  to  the  interest  of  the  bank 
as  well  as  of  the  drawer  to  get  all  items  accepted  if 
possible.  Drafts  with  documents  attached,  such  as 
bills  of  lading,  also  require  special  attention,  and  the 
instructions  regarding  each  must  be  carefully  ob- 
served. 

The  work  in  connection  with  drafts  issued  on  other 
branches  or  correspondents  in  payment  for  collec- 
tions, as  well  as  with  drafts  and  money  orders  sold 
to  customers,  is  generally  performed  by  the  collec- 
tion clerk. 

7.  Discount  clerk.— It  is  the  duty  of  the  discount 
clerk  to  look  after  the  work   in   connection  with 
all  notes  and  bills  discounted.     Each  note  and  bill 
should  first  be  initialed  by  the  manager,  and  then 
passed  by  the  latter  direct  to  the  discount  clerk,  who 
should  see  that  each  item  is  in  proper  form  as  re- 
gards terms,  date,  indorsement,  and  the  like,  before 
entering  it  in  the  discount  register.     The  interest  is 
then  reckoned  and  the  proceeds  credited  to  the  cus- 
tomer's account  thru  the  discount  blotter.    In  the 
case  of  a  "petty  loan"  a  voucher  is  issued  on  which 
the  proceeds  may  be  drawn  in  cash.    All  interest 
computations  should  be  checked  by  a  second  officer 
to  insure  correctness.     Exchange  on  bills  payable 
at  outside  points  must  also  be  deducted. 

8.  The  junior.— The  duties  of  the  junior,  as  the 


154 


BANKING  PRACTICE 


I, 


r  n 


1 1  i  ?  I  -. 


beginner  is  called,  vary  according  to  the  size  of  the 
office.  At  a  small  country  branch  he  will  have  charge 
of  the  collections,  cash  book,  supplementary  cash 
book,  outgoing  mail,  besides  various  other  duties 
which  in  a  large  oflSce  are  performed  by  the  messen- 
ger or  porter.  In  a  large  office  where  there  are  sev- 
eral tellers,  ledger-keepers,  etc.,  his  duties  may  con- 
sist of  only  one  line  of  work.  He  may  be  one  among 
several  in  charge  of  the  supplementary  cash  books, 
and  do  nothing  else  all  day  than  entering  up  deposit: 
and  checks;  or  he  may  do  similar  entry  work  in  vari- 
ous other  departments. 

REVIEW 

Describe  the  duties  of  the  branch  bank  manager.     What  are 
the  duties  of  the  teller?     Of  the  ledger  keeper? 
For  what  work  is  the  discount  clerk  responsible? 
What  experience  does  the  junior  in  a  small  branch  receive? 


iMm  ^^Ki.i*'.r^  .  ■ur7»*_--.*JL*."    . 


CHAPTER  IV 

BRANCH  BOOKS  AND  RECORDS 

1.  Bank  accounting.— The  tendency  of  modern 
accounting  is  to  adapt  the  books  to  a  business,  rather 
than  the  business  to  the  books,  and  this  practice  is 
particularly  noticeable  in  bank  bookkeeping.  Sys- 
tems and  devices  may  differ  among  banks,  and  even 
between  branches  of  the  same  bank,  but  the  basic 
principles  are  the  same.  Once  a  clear  understanding 
of  bank  bookkeeping  in  general  is  obtained,  there 
will  be  found  little  or  no  difficulty  in  mastering 
any  of  the  methods  or  systems  in  use  by  Canadian 
banks. 

To  grasp  thoroly  all  the  underlying  principles  of 
bank  accounting,  it  is  necessary  to  bear  in  mind  that 
practically  everything  handled  by  a  bank,  in  the  or- 
dinary course  of  its  business,  is  either  money  itself, 
or  a  written  claim  or  right  to  money.  Consequently 
the  cash  book  in  a  bank  is  the  principal  book,  and 
thru  its  pages  must  pass  a  record  of  every  transaction 
made  by  the  bank,  either  in  detail  or  as  a  total  from 
s  supplementary  book.  Thus  the  cash  book  gives  a 
bird's-eye  view  each  day  of  all  the  work  of  the  bank. 
Some  banks  stiU  use,  in  addition  to  the  cash  book,  a 


156 


■ANKIN6  PRACTICE 


il     « 


modified  form  of  the  old-fashioned  journal,  but  it  is 
preferable  to  make  the  cash  book  the  only  posting 
medium  of  the  general  ledger. 

It  would  be  quite  possible  for  a  newly-opened 
branch  to  conduct  its  business  for  the  first  six  months 
or  so  with  the  aid  of  a  cash  book  and  a  ledger,  which 
would  serve  for  all  accounts.  A  collection  register 
would,  however,  soon  be  necessary. 

As  the  business  grew  it  would  be  found  convenient 
to  hare  a  special  ledger  for  individual  accounts,  with 
the  control  or  key  account  carried  in  the  original  led- 
ger, and  to  have  the  checks  and  deposits  entered  in  a 
supplementary  cash  book,  with  only  the  totals  entered 
in  the  general  cash  book.  Similarly,  it  would  be 
found  necessary  in  time  to  open  up  a  discount  regis- 
ter and  a  liability  ledger  to  look  after  the  increased 
number  of  loans. 

As  the  volume  of  business  increases,  the  deposit 
ledger  is  capable  of  being  indefinitely  subdivided, 
either  alphabetically  or  numerically.  Generally,  the 
ordinary  deposit  ledger  is  divided  alphabetically  and 
the  savings  bank  ledger  numerically. 

From  the  above  it  will  be  noticed  that  bank  book- 
keeping, altho  based  primarily  on  the  cash  book  and 
ledger,  is  susceptible  of  indefinite  expansion  in  any 
direction  to  meet  increased  volume  of  business  or 
other  local  exigencies. 

2.  Books  of  a  branch. — The  books  in  use  at  even 
a  moderately  sized  office  generally  include  those  given 
in  the  following  list: 


BRANCH  RECORDS 


1«7 


Books  of  Original  Entry 
Cash  Book. 


Cash  Book,  supplementary. 
Discount  Register. 
Discount  Blotter. 
Discount  Diary,  local  bills. 
Discount  Diary,  remitted  bills 
Draft  Register. 
Checks  Remitted  Register. 
Sight  Item  Register. 
Remittance  Book  (**Red"  book). 
Branch  Clearings  Statement. 


Figure    6. 

7. 

8. 

9. 

10-11. 

12-13. 

14-16. 

1& 

17. 

18. 

Tenet's  Books 

Teller's  Blotter. 
Figure  21.     Teller's  Cash  Statement. 
Money  Parcels  Received. 
Money  Parcels  Despatched. 
Books  of  Summary 

General  Ledger. 
Figure  23.     Deposit  Ledger. 

24.  Savings  Deposit  Ledger. 

25.  Liability  Ledger. 

26.  Blue  Books  (Trade  Paper). 

Fiduciary  Books 

Figure  27.     Collection  Register. 
Collecticm  Diary. 
28.     Collateral  Register. 

Statistical  Books,  etc. 

General  Statement  Book. 

Financial  Statement  Book. 

Letters  Received  Register. 

Postage  or  Letters  Despatched  Book. 

Past  Due  Bill  Register. 

Warehouse  Receipt  or  Produce  Book. 

Pro  Forma  Stationery  Book. 


158 


BANKING  PRACTICE 


1  ■. « 


Ir;. 

lifliii 


Register  of  Powers  of  Attorney. 
Register  of  Waivers,  Etc. 
Overdraft  Register. 
Expense  Book. 
Discrepancy  Book. 
Treasury  Book. 

This  list  may  appear  formidable  but  it  is  intention- 
ally comprehensive.  A  small  branch  would  require 
only  half  this  number;  the  fewer  books  used  in  an 
office  the  better.  New  books  or  sub-divisions  of 
books  should  be  introduced  only  when  the  work  on 
the  original  book  becomes  congested.  A  ledger,  for 
instance,  should  be  subdivided  only  when  the  posting 
and  references  become  too  heavy  for  one  clerk  to  do, 
and  when,  in  consequence,  the  work  of  the  office  is 
delayed.  Method,  simplicity  and  concentration  are 
the  foundations  of  an  efficiently  managed  office. 

Books  shoiiM  be  uniform  in  size  as  far  as  possible; 
thickness  and  weight  should  be  avoided.  Two  or 
three  standard  sizes  should  be  established  and  com- 
plied with.  Uniformity  in  size  and  position  of  post 
holes  is  particularly  advantageous  in  the  loose-leaf 
system,  as  the  binders  are  then  not  only  interchange- 
able, but  one  binder  can  be  used  for  several  different 
forms. 

Attention  should  be  paid  to  the  ruling,  with  a  view 
to  uniformity.  One  inch  and  a  quarter  is  ample 
width  for  the  average  money  column,  with  a  hair  line 
dividing  the  thousands — allow  five-sixteenths  of  an 
inch  for  the  cents  and,  say,  seven-sixteenths  for  the 
thousands.     One-half  to  three-quarters  of  an  inch  is 


BRANCH  RECORDS 


159 


sufficient  for  discount,  exchange,  date  columns,  etc. 
As  regards  the  width  between  the  liorizontal  lines, 
one-quarter  of  an  inch  is  a  good  average.  In  books 
where  the  entries  are  extended  across  a  number  of 
columns,  every  fifth  horizontal  line  should  be  of  a 
color  different  from  the  regular  ruling,  to  serve  as  a 
guide  line.  Books  or  forms  intended  for  use  with 
an  adding  machine,  if  ruled,  should  be  spaced  accord- 
ing to  the  mechanical  spacing  of  the  machines  used. 

In  the  sample  forms  given  in  this  chapter  no  at- 
tempt IS  made  to  preserve  the  correct  proportion  of 
the  various  columns;  to  do  so  would  occupy  too  much 
space.  These  forms  have  no  particular  claim  to  merit 
except  that  they  have  been  in  satisfactory  use  for 
years  in  different  banks.  They  are  general  rather 
than  specific,  and  will,  it  is  hoped,  be  suggestive  as 
well  as  directly  useful. 

3.  Loose-leaf  accounting. —The  vast  increase  in  the 
number  and  volume  of  commercial  transactions  dur- 
ing the  past  twenty  years  has  made  the  use  of  loose- 
leaf  ledgers  and  other  books  a  practical  necessity  in 
modern   accounting.     In   Canadian  banks,   particu- 
larly, the  system  has  been  in  successful  operation  for 
many  years.     The  principal  objection  urged  against 
loose-leaf  ledgers— the  question  of  their  validity  in  a 
court  of  law— appears  to  have  died  a  natural  death. 
Ihe  courts  rule  so  plainly  and  the  logic  is  so  clear, 
that  It  is  the  orighial  entry  that  counts  and  not  the 
assembly  of  entries  in  the  ledger,  that  it  is  now  gen- 
eraUy  conceded  that  the  loose-leaf  ledger  is  just  as 


160 


BANKING  PRACTICE 


acceptable  as  evidence  in  a  court  as  a  bound  ledger. 
In  fact,  with  the  precautions  observed  by  the  banks 
in  their  use  of  loose-leaf  books,  the  evidence  might 
be  considered  even  more  competent.  The  following 
rules  are  generally  observed: 

1.  The  keys  of  all  loose-leaf  ledgers  and  transfer  binders 
are  kept  in  the  custudy  of  the  manager  or  of  the  accountant 
or  other  officer  specially  authorized,  by  whom  blank  sheets 
are  inserted  as  required,  and  the  used  sheets  removed  and 
filed  in  the  transfer  binder. 

8.  After  removing  the  sheets,  the  officer  who  has  custody 
of  the  key  must  place  a  paper  seal  bearing  his  signature  in 
the  sealing  device  on  the  front  of  the  ledger,  and,  when  open- 
ing the  book  again,  must  satisfy  himself  that  his  last  seal 
has  not  been  tampered  with. 

S.  A  separate  sheet  must  be  used  for  each  account,  and 
each  sheet  must  be  signed  in  the  upper  right-hand  corner  bj 
the  manager  or  accountant  when  the  first  entry  is  made. 
The  officer  who  signs  the  sheet  must  see  that  the  account  is 
properly  indexed. 

4.  A  few  blank  sheets  may  be  locked  in  the  current  ledger 
for  emergency  use,  but  all  others  must  be  kept  under  lock 
in  the  custody  of  the  officer  who  holds  the  key  of  the  ledger. 

Bound  books  have  not  prevented  manipulation  and 
fraud,  and  the  above  precautions  combined  with  the 
comprehensive  checking  system  of  a  bank  should 
practically  eliminate  the  danger  of  fraudulent  substi- 
tution of  pages.  If  a  man  is  determined  to  be  dis- 
honest there  are  easier  and  less  evident  methods  of 
defrauding  than  by  switching  ledger  leaves. 

4.  Cash  hnnk, — This  book  contains  a  record  of  all 
the  vouchers  and  entries  representing  the  transac- 
tions of  each  day.     Theoretically,  the  particulars  of 


BRANCH  RECORDS  igi 

every  item  in  the  cash  book  should  be  entered  in  de- 
tail, but  owing  to  the  wide  extension  of  banking  fa- 
cihties  and  the  constantly  increasing  volume  of  checks 
and  other  entries,  it  has  been  found  necessary  to  use 
supplementary  books  for  recording  particulars  of  any 
class  of  Items  whose  volume  is  sufficient  to  warrant  a 
separate  book-only  the  day's  totals  are  carried  into 
the  general  cash  book.    The  majority  of  entries,  es- 
pecially m  a  large  office,  are  therefore  in  the  form  of 
totals  and  very  few  detailed  entries  have  to  be  made; 
but  all  entries,  when  made,  should  be  definite  as  to 
source  and  sufficiently  self-explanatory  to  be  under- 
stood  by  any  one  at  any  time-ten  years  after,  if  nee 
essary. 

In  the  larger  offices,  the  officers  in  charge  of  the  dif- 
ferent departments  after  balancing  their  books  hand 
to  the  cash-book  clerk  the  totals  in  the  form  of  a 
signed  memorandum,  and  even  in  the  smaller  offices 
It  is  advisable  to  have  the  clerks  entering  up  the  vari- 
ous supplementary  books,  give  a  similar  memoran- 
dum of  their  totals.  This  limits  the  responsibility 
and  adds  to  the  efficiency  of  the  staff. 

fK^.^*'*i  *"^  ''''^^^  ^"*"^'  ^°^  ^^«^  book,  other  than 
the  totals  referred  to  above,  are  represented  by  vouch- 
ers  givmg  the  necessary  particulars,  signed  by  the 
manager,  accountant  or  other  authorized  officer,  and  it 
should  be  an  imperative  rule  that  any  slip,  which  does 
not  contam  sufficient  particulars  or  which  lacks  the 
necessary  signature,  should  be  refused  by  the  cash- 
book  clerk  and  referred  back  to  the  teller  for  compfe- 


16S 


BANKING  PRACTICE 


tion.  In  order  to  facilitate  the  sorting  and  check- 
ing of  these  vouchers,  distinctive  colored  paper  or 
printing  should  be  used;  for  instance,  yellow,  debit 
slips  and  white,  credit  slips. 

It  should  constantly  be  borne  in  mind  that  as  the 
cash  book  and  its  supplementary  books  are  recognized 
in  a  court  of  law  as  the  books  of  original  entry,  faulty 
or  meager  particulars  might  cause  serious  trouble. 
Verbal  explanation,  even  if  available,  would  not  be 
admitted.  £xamine  a  bank  cash  book  of  twenty  or 
thirty  years  ago:  there  could  be  no  better  object  lesson 
of  what  a  cash  book  should  be.  Copper-plate  writing 
and  ample  particulars  are  characteristic. 

5.  Writing  up  the  cash  book. — Many  labor-saving 
and  ingenious  rulings  are  to  be  found  among  the 
books  of  banks,  and  improvements  are  constantly  be- 
ing devised  and  adopted.  The  most  essential  book 
however,  the  cash  book,  remains  practically  un- 
changed, and  is  simply  an  ordinary  commercial  cash 
book  with  two  or  three  money  columns,  a  space  for 
date  and  particulars,  and  with  no  printed  headings. 
The  columnar  cash  book  is  not  adapted  to  bank  work 
and  it  has  never  found  favor. 

6.  Supplementary  cash  hook. — In  this  book  are 
entered  all  the  deposit  slips,  checks,  and  other  vouch- 
ers pertaining  to  the  ordinary  deposit  and  savings 
bank  ledgers.  The  rulinff  is  simple,  requiring  no 
printed  headings,  and  consists  of  columns  for  folio, 
names  of  customers  and  amount  of  vouchers — two  sets 
of  columns  to  a  page.     Two  pages  will  easily  contain 


BRANCH  RECORDS 


168 


a  day's  entries  for  a  small  branch,  the  first  or  left- 
hand  column  being  used  for  deposits  and  the  remain- 
ing three  for  checks,  the  latter  being  much  more  nu- 
merous. The  savings  deposits  and  checks,  being  com- 
paratively few  in  number,  are  entered  at  the  end  of 
the  day  under  their  own  headings  at  the  foot  of  the 
ordinary  checks  and  deposits  respectively,  tho  in  some 
small  branches  they  are  entered  in  the  general  cash 
book. 

In  offices  where  it  is  found  necessary  to  spUt  up  the 
deposit  ledger  into  two  or  more  alphabetical  divisions 
a  special  "supplementary"  is  devoted  to  each  division 
mcluding  the  savings  bank  ledger.  It  is  not  neces- 
sary to  open  up  an  account  in  the  general  ledger  for 
each  division  of  the  deposit  ledgers. 

If  the  savings  ledger  contains  a  large  number  of 
accounts,  it  will  be  found  of  great  advantage  to  split 
it  up  into  several  sections  or  blocks  of  accounts,  as 
this  greatly  facilitates  the  location  of  errors  when 
balancing.  A  special  form  of  supplementary  cash 
book  should  be  used  with  a  money  column  for  each 
block  of  accounts. 

In  the  case  of  a  current  account  which  has  an  un- 
usual number  of  checks  at  a  certain  period  of  the 
month  or  year— for  instance,  payroll  or  dividend 
ehecks--it  is  permissible  to  detail  a  day's  checks  once, 
either  in  the  supplementary  cash  book  or  ledger,  and 
enter  the  total  only  with  a  reference  in  the  other  book. 

In  the  larger  offices  of  some  of  the  banks,  where  the 
volume  of  checks  is  unusually  heavy,  a  loose-leaf  form 


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164 


BANKING  PRACTICE 


of  supplementary  cash  book  is  used  in  connection 
with  the  adding  machine,  the  names  being  typewrit- 
ten in  afterward.  Where  this  form  is  adopted,  care 
should  be  taken  to  see  that  the  sheets  are  consecu- 
tively numbered  and  filed,  and  that  each  sheet  is 
signed  by  the  two  checking  officers. 

7.  Discount  register. — In  this  book,  as  its  name  im- 
plies, are  entered  all  the  notes  and  bills  discounted  by 
a  branch.  The  book  is  ruled  so  as  to  provide  space 
for  a  full  description  of  every  item,  and  the  notes  are 
entered  and  numbered  consecutively.  Two  or  more 
lines  can  be  used  where  a  note  has  numerous  obligants, 
or  when  the  description  of  the  security  is  lengthy.  A 
form  in  common  use  is  shown  in  Figure  7.  The  head- 
ings are  self-explanatory  with  the  exception  perhaps 
of  the  last  two — loans  and  trade  bills. 

Loans  comprise  all  the  advances  made  to  a  borrower 
on  his  own  name  and  consist  principally  of  the  fol- 
lowing classes: 

(a)  Advances  made  on  the  name  of  the  borrower 
alone ; 

(b)  Advances  secured  by  one  or  more  indorsers; 

(c)  Advances  secured  by  produce,  stocks  and 
bonds,  notes  and  other  collateral  securities. 

Trade  bills  represent  settlements  for  actual  goods 
sold,  and  are  only  offered  by  the  party  who  has  dis- 
posed of  the  goods.  They  may  consist  of  either 
drafts  or  notes. 

The  last,  or  remark  column,  is  used  to  denote  tlie 
domicil  of  a  trade  bill  when  it  is  payable  at  an  outside 


k.  t1 


165 


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166 


BANKING  PRACTICE 


point.  It  is  also  used  for  any  special  memorandum 
regarding  renewals,  and  the  like.  Some  banks  have 
an  additional  column  for  proceeds  in  their  discount 
register. 

As  already  stated,  all  notes  and  bills  are  entered  and 
numbered  consecutively.  The  loans  and  local  trade 
bills  are  then  entered  in  tht  diary  and  taken  over, 
checked  and  initialed  by  the  manager  daily,  or  at 
least  twice  a  week.  The  other  trade  bills  are  entered 
in  the  trade-bills-remitted  diary  and  initialed  by  the 
mailing  officer. 

8.  Discount  blotter. — This  book  is  a  valuable  ad- 
junct to  the  discount  register  and  an  excellent  form 
is  shown  in  Figure  8.  In  this  book  are  entered  the 
net  total  proceeds  of  the  discounts  to  be  credited  to  the 
various  customers,  also  the  amount  of  interest  and  ex- 
change collected.  If  more  than  one  deposit  ledger  is 
used,  a  column  is  provided  for  each  ledger.  These 
entries  are  made  from  the  discount  deposit  slips  or 
lists  which  are  then  passed  on  to  the  ledger-keeper 
who  posts  the  net  proceeds  to  the  credit  of  the  various 
customers  in  the  ledger,  marking  the  abbreviation 
**disct"  opposite  each  entry. 

In  the  case  of  casual  or  transient  notes  discounted 
for  customers  who  have  no  deposit  accounts,  a  special 
form  of  receipt  is  used  which,  when  signed  by  the  ob- 
ligant,  is  cashed  by  the  teller  and  charged  to  an  ac- 
count called  "petty  discounts"  in  the  deposit  ledger. 
The  offsetting  credits  are  entered  in  detail  in  the  last 
column  of  the  blotter,  extended  at  the  end  of  the  day 


BRANCH  RECORDS 


167 


into  the  ledger  column  and  posted  in  one  amount  to 
the  account. 

When  the  day's  work  is  balanced,  the  interest,  ex- 
change  and  ledger  columns  will  agree  with  the  total 
of  the  loans  and  trade  bills  in  the  discount  register. 
The  total  for  the  deposit  ledger  is  included  in  the  total 
of  the  supplementary  cash  book  for  the  day,  and  the 
balancmg  entries  are  passed  thru  the  general  cash 
book. 

The  entries  in  the  blotter  are  called  off  with  the 
deposit  ledger  daily. 

^.Discount  diary.-Figure  9  shows  a  useful  form 
of  diary  for  loans  and  local  trade  bills  maturing   a 
page  or  part  of  a  page  being  given  to  each  day  of  the 
year.    As  each  day's  biUs  mature  the  notes  are  taken 
over  and  initialed  by  the  teller,  a  line  being  drawn 
across  the  money  columns,  and  the  loans  and  trade 
bills  for  the  day  totaled.     At  the  end  of  the  day  the 
unpaid  Items  are  extended  into  the  past  due  column 
for  debit  to  past  due  bills  account,  and  the  entries 
passed  thru  the  teller's  blotter,  whose  "Notes  paid" 
cohmm  should  balance  with  t^      atal  of  the  credits  to 
loans  and  trade  bills. 

Any  notes  paid  before  maturity  are  marked  off  the 
diary  on  the  day  due,  entered  below  the  dividing 
line  of  the  day  s  notes  and  added  to  the  total.  Simi- 
arly  any  past  due  bills  should  be  marked  off  and  en- 
tered m  the  column  provided,  all  entries  below  the 
ime  m  this  column  being  considered  credits. 
The  column  for  interest  can  be  used  for  a  record  of 


BRANCH  RECORDS 


169 


any  interest  ''oUected  which  is  not  entered  in  the  reg- 
ister,  such  as  interest  on  past  dues,  demand  notes,  etc. 
The  diary  sheet  of  the  day  will  aflPord,  therefore,  a 
complete  record  of  all  payments  made  to  the  discount 
department. 

10.  Trade  bills  remitted  diary. — Only  in  the  very 
large  offices  is  it  necessary  to  have  a  separate  book  for 
this  diary.  In  the  ordinary  branch,  the  ruling  given 
in  Figure  10  appears  at  the  foot  of  the  discount  diary. 
At  the  end  of  each  day  the  total  is  credited  to  trade 
bills  remitted  and  debited  to  cash  items  account,  there 
to  await  the  relative  remittances,  credits,  etc.,  when 
the  items  are  duly  marked  off  as  either  paid  or  re- 
turned. 

Considerable  space  is  wasted  in  connection  with  this 
daily  diary,  and  a  weekly  diary,  as  shown  in  Figure 
11,  has  been  used  to  advantage.  Four  sheets  to  the 
month  are  used,  covering  1st  to  8th,  9th  to  15th,  16th 
to  23d,  and  24th  to  the  end  of  the  month,  and  are  filed 
in  their  chronological  order  in  the  discount  diary,  a 
different  colored  paper  being  used  to  distinguish 
them.  The  bills  are  entered  in  consecutive  order  ac- 
cording to  maturity  on  these  weekl]-  sheets.  On  the 
second  day  of  each  week,  say  on  August  2,  for  the 
week  of  August  1  to  8,  the  total  for  the  week  is  cred- 
ited to  trade  bills  and  debited  to  cash  items  account, 
and  the  sheet  handed  to  the  cashbook  man  to  be 
marked  off  as  the  items  are  accounted  for. 

11.  Drafts  register.— The  first  form  given  in  Fig- 
ure 12  is  for  drafts  drawn  on  foreign  correspondents. 


ei 


BRANCH  RECORDS  171 

These  generally  have  to  be  covered  by  remittances  or 
credits  to  another  branch  or  correspondent.  Great 
care  should  be  taken  to  see  that  the  draft  is  prop- 
eriy  made  out,  signed,  advised  and  remitted  for  cor- 

Figure  18  is  the  register  for  drafts  drawn  on  other 
branches.  The  total  for  the  day  is  credited  to  an  ac 
count  m  the  general  ledger  called  draft  account. 
After  payment  the  draft  is  returned  by  the  drawee 
branch  at  debit,  is  marked  off  with  the  dating  stamp, 
listed  with  other  paid  drafts  in  the  right-hand  column, 
and  at  the  end  of  the  day  this  total  is  debited  to  the 
draft  account.  The  items  unmarked  at  any  time  will 
be  outstanding,  and  their  total  will  balance  with  the 
draft  account  in  the  general  ledger. 

12.  Check  lista.-^All  debits  between  branches,  in- 
duding  checks,  drafts  and  money  orders  paid,  and 
the  bke  are  hsted  on  a  special  form  called  a  check 
^st,  and  debited  in  one  total  to  branch  clearings  ac- 
count and  the  list  forwarded  direct.     The  receiving 
branch  gives  credit  on  the  branch  clearings  statement 
immediately  on  rec»  pt.    Even  if  an  item  has  to  be 
returned  or  there  is  an  error  in  the  addition  of  a  list, 
the  amomit  as  shown  must  be  credited  exactly,  and 
the  difference  adjusted  on  "At  Credit"  advice  or  a 
return  check  list,  as  the  case  may  be.    Check  lists  are 
ot  c  fferent  forms  and  sizes,  but  are  invariably  in 
duplicate,  the  carbon  copy  being  retained  as  a  record. 
In  the  larger  branches  the  lists  are  on  loose  sheets  of 
one,  two  or  three  lists  each,  for  use  with  the  type- 


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B'-UNCH  RECORDS  179 

writer  or  a>  ,ad-i„e,  the  carbon  copies  being 

fa^edmabmdc     or  reference.    Figure  U  is  «  com* 
mon  form. 

In  the  smUw  branches  the  lists  are  in  bound  form, 
generally  two  large  and  four  smaU  lis-  to  a  pZ 
figure  1«.  At  the  end  of  the  day  aU  lis.,  for  S 
branches  „e  debited  in  the  branch  clearings  state- 
ment^ and  only  m  case  of  loss  or  deUy  m  trwsit  wiU 
the  copies  be  referred  to. 

Check  hsts  sent  to  correspondents  are  entered  and 
filed  sunUarty.  with  the  exception  that  they  are  de^ 

™nt  °""*  '"  *'"'  '"'"'"'^  <='<'"'°8^  ''t*'- 

Ori^lly   check  lists  were  debited  to  cash  .'tems 

«^nt  unt  J  due  advice  of  payment  was  received  on 

the  hsts  direct  to  branch  clearings  Recount.     No  item 
B  more  promptlj     jsponded  to  than  a  check  list,  and 

rf  Utt^ri^    ^°^^^  '"  '"''"'  ^^  "'"  elimination 

.ifni''^J  «'7*-AU  debits  originating  at  a  oranch 
affunst  other  branches,  with  the  exception  of  rheck 

railed    cad,  rtems"  account  or  "short  date  draft"  ac- 
count.   These  debits  may  consist  of  the  foUow:  ,g: 
(a)  Demand  and  sight  drafts  received  from  cus- 


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Endoner 


FioDEE  14,    Check  Lire 


WHEN  CREDITINa  THEM  ITEM*  WVE  DATE                                              C.K.LUt 

THE  CANADIAN  BANK  OF  COMMERCE 

WE  ENCLOtE  rOR  CREDIT  Oft  ftEMITTAHCE  ITEMS  AS  USTEO  BELOW 

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FiocBB  15,    Check  Lire 

174 


BRANCH  RFXORDS  175 

(c)  Remitted  discounts  as  debited  each  day  from 
the  diary  These  include  bills  held  by  corre'spond- 
ents  as  well  as  by  branches. 

This  account  should  be  drawn  off  weekly  and  bal- 
anced With  the  general  ledger.  Any  item  outstand- 
ing  an  undue  length  of  time  should  be  promptly  in. 
quired  about  or  "fated"-to  use  an  office  term 


WHIN  owwnm  on  umttwo  fm 
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anff^tV^  u  *  ^'^^'^  ^°"^  combining  a  record 
copy  bemg  retamed  as  the  record. 
14.  Remittance  book.~-This  book  was  originally 

used  simply  to  record  the  remittances  from  other 
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BRANCH  RECORDS  I77 

banks  and  the  distribution  of  the  proceeds;  but  it 
gradually  developed  into  a  general  sorting-out  book 
for  the  cash  book,  and  is  particularly  useful  in  con- 
nection with  the  mail  work.  All  credits  for  cash 
Items  account  should  be  entered  here  and,  if  possible. 
aU  the  entries  for  branch  clearings  account,  in  order 
to  form  a  check  on  the  completed  statement.  The 
nihng  and  headings  vary  in  different  banks,  but  a 
good  form  is  shown  in  Figure  17. 

The  bulk  of  the  entries  for  this  book  arrive  m  the 
mormng  mail. 

Returned  cash  items  are  also  entered  in  this  book, 
bemg  credited  in  the  cash  items  colmnn  and  debited  in 
the  sundry  column  to  the  indorsers.  only  the  totals 
being  handed  to  the  teUer. 

This  book  is  most  useful  in  sorting  out  and  block- 
ing  the  work. 

15.  Branch  cleanng  statement— In  a  branch  sys- 
em  there  must,  of  necessity,  arise  each  day  numerous 
entnes  between  the  branches  themselves,  and  between 
he  branches  and  the  head  office.    Direct  accounts  be- 
tween branches  are  out  of  the  question,  and  separate 

accounts  with  the  head  office  are  cumber;ome,  esS 
ly  when  the  branches  are  at  all  numerous.   The  most 

saisfactory  method  in  use  is  what  is  known  as  the 

branch  clearing  system.  This  is  a  simple  and  ingenious 

ystem  which  makes  the  head  office  the  clearing  house 

or  all  inter-branch  transactions.     The  medium  is  a 

^s  sent  to  the  head  office  daily  by  each  branch,  and  on 


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I  hare  compared  the  above  en- 
tries  with   the   relative   At  Credit 
slips,  checked  the  summations,  and 
have  compared  the  balances  shown 
with   the   figures  of  the   General 
Ledger. 
The  balance  to  be  carried  forward 
from    this    acco' nt    should    be 
written    on    a    lower    line    than 
that  on  which  tiie  balance  from 
the  previous  dajr  is  given. 

AeeomUatt 

Extreme  care  must  be  taken  to  avoid  errors  of  any  kind  in  this  Return 

FiotTU  18 
17a 


BRANCH  RECORDS 


179 


which  are  entered  all  transactions  with  the  other 
branches  and  with  the  head  office.  (See  Figure  18  ) 
So  far  as  possible,  the  entries  passing  thru  branch 
clearings  account  consist  of  totals  only.  No  particu- 
lars are  necessary  except  the  name  or  number  of  the 
branch  credited  or  debited. 

Check  hsts  originate  as  debits  and  are  responded  to 
by  credits.     "At  credit"  advice  slips  originate  as  cred- 
Its  and  are  responded  to  by  debits.     Head  office  en- 
tries both  debit  and  credit,  originate  at  the  branches. 
All  entries  for  the  st.^tement  should  be  systematic- 
ally arranged  both  as  to  classification  and  the  order  of 
the  branches.    At  the  end  of  the  day  the  branch  clear- 
ing^ statement  is  added  and  the  totals,  debit  and 
credit  entered  in  the  cash  book.    The  statement  is 
then  balanced  with  the  general  ledger  by  the  addition 
of  the  day»s  balance,  carefully  checked,  and  forwarded 
to  the  head  office  the  following  day.     No  change 
IS  permissible  in  the  entries.    They  must  be  credited 
or  debited  to  the  statement  exactly  as  received.     Er- 
rors m  check  lists  or  advices  must  be  corrected  by  the 
creation  of  separate  entries. 

16.  ''At  credit"  advices.— Wiih  the  exception  of 
check  Ksts,  no  branch  debits  another  branch  in  this 
statement  without  first  receiving  an  advice  on  an  "At 
credit"  slip.     (See  Figure  19.) 

All  other  items  collected  by  one  branch  for  another 
during  a  day  are  entered  on  an  "At  credit"  slip,  the 
total  of  which  is  credited  on  the  branch  clearings 
statement  against  the  name  of  the  branch  interested, 


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BRANCH  RECORDS  igj 

and  the  advice  is  then  mailed  direct  to  the  latter  a 
carbon  copy  being  retained  for  record.  Immedi- 
ately on  receipt  of  the  advice  the  total  amount  is  deb- 
ited  m  branch  clearings  against  the  name  of  the  ad- 
vismg  branch,  and  the  items  credited  to  their  several 
destinations.  The  credit  entry  is  thus  offset  and 
ticked  off  m  due  course  at  the  head  office.  Some  of- 
fices win,  of  course,  require  the  use  of  a  much  larger 
advice  slip  than  the  form  shown. 

Two  columns  will  be  noticed  in  the  advice.    The 
first  column  is  used  for  debits  already  created  at  the 
credited  branch,  which  await  the  relative  credits  in 
Cash  items  account." 

The  second  column  is  used  to  advise  aU  other  credits 
such  as  collections,  deposits,  collaterals,  trade  bills 
paid  out  of  date,  and  other  similar  items. 

Cash  items  consist  principally  of  sight  items  and 
matured  trade  bills,  and  these,  on  the  receipt  of  the 
•advice,  are  marked  off  as  paid,  and  the  first  column 
of  the  advice  credited  to  the  account  as  a  total. 

17.  Head  ofjfice  entries.— Head  office  entries,  both 
debit  and  credit,  originate  with  the  branches  in  every 
case.  The  entries  can  be  made  either  in  red  ink  at  the 
toot  of  the  branch  clearings  statement,  or  else  entered 
on  a  special  form  in  detail,  and  only  the  totals  entered 
into  the  statement.  Figure  20  is  comprehensive  and 
allows  for  an  analysis  of  the  contents  of  all  money  per- 
cels  aebited  All  debits  and  credits  on  correspondents 
ongmating  at  the  branches,  are  passed  thru  the  head 
oflice  account.    Lists  of  dividend  warrants,  profit 


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182 


BRANCH  RECORDS 


18S 


and  loss  entries,  expense  checks  and  other  head  office 
matters  are  all  entered  here. 

18.  Business  with  other  fcanA:*.— Transactions  be- 
tween Canadian  banks  are  generally  effected  thru 
the  daily  clearing,  and  very  seldom  thru  the  medium 
of  an  account.    Ft^reign  correspondents  generally 
carry  a  deposit  account  at  one  of  the  large  offices  to 
which  any  collections  made  for  them  by  any  of  the 
branches  are  credited  or  drafts  drawn  debited.    Most 
accounts  with  correspondents,  however,  are  more  con- 
veniently carried  at  the  head  office;  aU  debits  and 
credits  originating  with  the  branches  being  advised 
thru  the  branch  clearings  account.    Daily  statements 
from  the  correspondents  give  the  respon  !ing  entries, 
and  the  accounts  are  kept  in  constant  adjustment. 
Not  only  does  this  concentration  at  the  head  office  sim- 
plify the  bookkeeping,  but,  as  the  balances  with  cor- 
respondents frequently  form  an  important  part  of  a 
bank's  reserve,  it  enables  the  head  office  to  control  the 
balances  accordingly. 

19.  Teller's  records.~The  teller's  cash  book  or  blot- 
ter consists  of  a  skeleton  ruling  with  no  printed  head- 
ings, these  being  written  in  daily  by  the  teller  accord- 
ing to  his  requirements.  Were  the  headings  printed 
it  would  require  a  specially  printed  book  for  each 
class  of  teller,  and  even  then  it  might  not  be  suitably 
spaced  for  local  requirements. 

A  teller  sliould  arrange  his  entries,  debit  and  credit 
to  conform  with  the  general  system  of  the  office. 
Checks  should  be  sorted  out  and  entered  according  to 


184 


BANKING  PRACTICE 


5  " 


the  divisions  of  the  ledger,  thus  balancing  with  the 
various  supplementaries.  If  the  checks  are  very 
numerous,  separate  sheets,  suitably  ruled,  can  be  used; 
these  can  be  entered  on  an  adding  machine  or  by  an 
ftdsistant. 

A  teller's  book  is,  in  reality,  a  skeleton  cash  book, 
and  the  entries  should  be  so  airanged  that  the  books 
of  the  various  departments  should  balance  with  the 
combined  entries  of  the  tellers. 

Figure  21  is  used  at  the  e:id  of  the  day  as  a  balance 
book  and  record  of  cash  in  hand;  it  is  self-explanatory. 

All  parcels  of  money  received  are  acknowledgjd, 
and  entered  in  a  special  book.  If  the  advice  comes 
in  first  it  should  be  at  once  entered  in  this  book,  and 
the  parcel  inquired  for  if  necessary.  Money  parcels 
dispatched  are  also  entered  in  a  book.  Great  care  is 
necessary  in  handling  money  parcels.  Both  sent  and 
received  parcels  should  be  counted  by  two  men  in  each 
other's  presence  and,  in  the  case  of  the  former,  it  is 
necessary  to  have  the  parcel  in  the  iminterrupted 
.custody  of  two  men  from  the  time  it  is  counted  and 
.sealed  until  it  is  delivered  to  the  express  company  or 
post  office. 

The  relative  advices  and  acknowledgments  should 
be  carefully  watched  and  any  delay  immediately  in- 
quired into. 

20.  General  ledger. — The  general  ledger,  next  to 
the  ca-h  book,  is  the  most  important  book  in  a  branch; 
in  fact  it  is  equally  important,  tho  in  a  different  sense. 
The  cash  book  is  the  book  of  original  entry,  and  con- 


186 


BANKING  PRACTICE 


w 


tains  a  chronological  record  of  all  the  transactions  of 
a  branch.  The  general  ledger  contains  the  summary 
or  analysis  of  these  transactions  under  the  various 
headings,  while  its  subsidiary  books,  the  deposit  and 
liability  ledgers,  summarize  the  amount  due  to  or 
from  individuals  respectively.  The  general  ledger 
is  posted  every  day  from  the  cash  book,  and  contains 
all  accounts  necessary  to  show  the  position  of  a  branch 
with  regard  to  the  business  done  under  the  various 
classifications  called  for  by  the  government  statement. 
As  a  matter  of  fact,  however,  the  accounts  kept  in  the 
average  branch  ledger  are  not  very  numerous  and  con- 
sist broadly  of: 

Assets — cash,  loans; 

Liabilities — liabilities  to  the  public; 

Office  Accounts — ^profit  and  'ass,  branch  clear- 
ings, etc. 

The  profit  and  loss  and  brinich  clearings  accounts 
are  internal  accounts,  and  may  be  either  debit  or 
credit.  The  latter  is  the  adjusting  account  of  the 
branch  with  the  bank  as  a  whole,  and  varies  approxi- 
mately with  the  difference  between  its  loans  and  de- 
posits, as  every  branch  cither  supphes  funds  to  the 
head  office  or  the  reverse. 

Loans  are  generally  carried  under  two  headings, 
loans  and  trade-bills,  tho  in  a  large  city  office  they  are 
frequently  sub-divided  into  half  a  dozen  accounts. 
This  is  merely  a  matter  of  convenience,  however.  In 
the  same  way  the  liabilities  are  divided  into  ordinary 
and  interest-bearing  deposits,  etc.    The  form  most 


BRANCH  RECORDS 


187 


generally  used  is  similar  in  ruling  to  the  current  de- 
posit ledger  (Figure  22),  with  wider  money  columns 
and  more  space  for  particular^. 

21.  Current  deposit  ledger. — The  ordinary  or  cur- 
rent deposit  ledger  is  a  very  active  and  important 
book  in  a  bank,  and  one  which  calls  for  both  accuracy 
and  dispatch  on  the  part  of  the  clerk  in  charge,  as 
errors  can  easily  be  made,  involving  the  bank  in  seri- 
ous loss.  The  deposit  ledger  is  always  a  loose- 
leaf  book  and  ruled  as  shown  in  Figure  22.  This 
form  is  invariably  used  by  all  the  banks.  The  so- 
called  Boston  ledger  has  been  tried  several  times,  but 
was  not  found  practicable  in  Canada,  owing  perhaps 
to  the  method  of  marking  oi  accepting  checks  by  & 
direct  debit  to  the  account.  The  accounts  are  ar- 
ranged alphabetically,  and  are  therefore  self-index- 
ing, but  an  index  is  usually  kept  on  the  tagged  sheet 
dividing  the  alphabet. 

In  small  offices  there  is  usually  only  one  current 
ledger  used,  A-Z.  As  work  increases  and  becomes 
too  much  for  one  ledger-keeper,  a  second  ledger  can 
can  be  opened  divided  A-K  and  L-Z.  For  three 
ledgers  the  divisions  generally  run  A-G,  H-O,  and 
P-Z,  and  for  four  the  divisions  are  A-C,  D-K,  L-R 
and  S-Z. 

As  the  ledger  is  loose-leaf  there  is  no  accumula- 
tion of  dead  leaves,  but  the  general  regulations  re- 
garding loose-leaf  ledgers  given  in  Section  8  of  this 
chapter  should  be  observed  closely. 

The  posting  is  invariably  made  direct  from  the 


m^ 


^^' 


'4 


BRANCH  RECORDS 


189 


original  deposit  slips  and  vouchers,  and  called  back 
or  checked  from  the  supplementary  cash  book.  The 
balances  should  be  kept  constancy  extended,  and 
checked  from  time  to  time  by  the  additions  of  the 
debit  and  credit  columns. 

22.  Savings  bank  ledger.—This  book  is  invariably 
in  loose-leaf  form,  ruled  as  in  Figure  28,  in  size  gen- 
erally about  8"  X  11". 

Ii  a  small  branch  one  ledger  suffices  as  a  rule,  but 
in  the  larger  offices  half  a  dozen  or  more  are  required 
to  take  care  of  the  bank's  deposits.  The  accounts, 
tho  very  numerous,  are  small  in  the  number  of  trans- 
actions, and  a  leaf  i^  used  for  each  account.  The 
signature  of  the  depositor  is  generaUy  taken  on  the 
ledger  sheet  for  convenience  of  reference,  as  well  as 
on  a  signature  card. 

The  rules  given  in  Section  8,  Chapter  IV,  should  be 
carefully  foUowed.  The  manager  must  control  the 
sheets  and  sign  all  that  are  inserted  in  the  ledger. 
The  bank  pass-books,  which  are  simply  small  copies 
of  the  ledger  sheet,  must  also  be  kept  in  the  custody 
of  the  manager,  and  given  out  in,  say,  dozen  lots,  to 
be  accounted  for  as  used.  It  is  advisable  that  no 
name  shall  appear  on  the  pass-book— just  the  account 
number. 

The  accounts  are  arranged  sometimes  alphabetically 
and  sometimes  numerically.  Both  methods  have 
their  adherents.  In  either  case  they  are  indexed  on 
the  tagged  divisions  or,  in  some  cases,  in  a  separate 
Dock.    Where  the  accounts  are  very  numerous  the 


190 


BANKINvT  PRACTICE 


ledgers  are  balanced  in  blocks  of  one  or  two  ledgers 
each,  and  in  this  way  errors  are  easily  located. 

23.  Liability  ledger. — This  book  bears  the  same  re- 
lation to  a  bank's  advances  as  the  deposit  ledger  does 
to  the  deposits.  The  latter  shows  how  much  the  bank 
owes  each  customer,  and  the  former  how  much  each 
customer  owes  the  bank.  The  liability  ledger  never 
shows  an  account  in  credit  and  the  deposit  ledger 
should  never  show  an  account  at  debit. 

There  are  many  different  kinds  of  liability  ledgers 
in  use,  some  very  elaborate.  The  simpler  forms 
are  the  more  practical,  the  main  object  being  to  see 
at  a  glance  how  much  of  each  kind  of  paper  a 
customer  has  under  discount,  the  names  of  security 
against  each  note,  and  the  total  amount  of  ad- 
vances. 

A  simple  form  is  given  in  Figure  24.  This  pro- 
vides progressi^^e  balances  for  loans  and  trade  bills, 
and  space  for  particulars  of  securities,  other  names, 
«;tc.  The  total  of  the  loan  and  trade  bills  at  any  time 
shows  the  amount  of  the  customer's  total  direct  liabil- 
ity to  the  bank.  Frequently,  however,  a  customer 
is  an  obligant  either  as  maker  or  indorser  on  a  note 
discounted  for  another  customer,  and  it  is  important 
for  the  bank  to  know  how  much  of  such  indirect  lia- 
bility is  outstanding.  This  class  of  paper  can  be  in- 
dicated by  an  entry  in  red  ink,  but  is  omitted,  of 
course,  from  the  balance,  as  it  has  been  posted  once  to 
the  account  of  the  customer  discounting  it.  In  this 
way  a  note  with  half  a  dozen  indorsers  can  be  re- 


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6 


^ 


XVI-C14 


192 


BANKING  PRACTICE 


M 


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corded  against  each  account  in  red  ink  without  aflPect- 
ing  the  ledger  balance. 

Where  accounts  involve  the  discounting  of  a  large 
amount  of  trade  paper,  small  loose-leaf  books  are 
used,  known  as  "Blue  Books"  (see  Figure  25),  one 
for  each  account,  and  by  this  means  track  is  kept  of 
the  total  amount  due  from  each  borrower's  customers. 
When  a  blue  book  is  used,  the  totals  only,  debit  or 
credit,  are  entered  in  the  liability  ledger,  no  details 
being  required.  The  resulting  balance  in  the  ac- 
count, however,  should  agree  with  the  total  of  the 
balances  in  the  blue  book.  The  total  amount  of  trade 
bills  in  an  account  is  not  of  great  importance,  pro- 
vided all  the  paper  represents  goods  sold  and  deliv- 
ered to  responsible  purchasers.  The  total  amount 
on  any  one  name,  however,  is  vitally  important,  and 
should  not  be  allowed  without  special  consideration  to 
exceed  five  per  cent  of  the  total  amount  of  trade  bills. 

24.  Collection  register. — The  form  shown  in  Fig- 
ure 26  is  an  economical  ruling,  as  it  only  occupies  one 
page  and  gives  all  required  particulars.  If  neces- 
sary, two  lines  can  be  used  for  an  i  em  which  requires 
a  fuller  description  than  ordinary.  The  entry  of  the 
name  of  the  maker  or  drawee  is  unnecessary,  for,  in 
the  case  of  a  note  or  accepted  draft,  it  is  entered  at 
once  in  the  collection  diary,  where  space  is  provided 
for  the  maker's  name.  If  it  is  a  draft  for  acceptance, 
the  drawee's  name  is  entered  in  the  messenger's  book, 
and  in  due  course  the  draft  is  either  returned  re- 
fused to  the  correspondent  or  entered  in  the  diary. 


194 


BANKING  PRACTICE 


m 


w " 


In  the  case  of  customers  who  have  a  large  nunibcr 
of  collections,  separate  fonns  are  frequently  provided, 
on  which  the  customer  lists  the  items  himself  in  dupli- 
cate and  the  bank  files  the  list  in  a  binder  as  its  regis- 
ter and  diary,  adopting  the  customer's  number  as  its 
own.  An  initial  letter  or  prefix  number  can  be  used 
to  distinguish  one  account  from  another.  (Figure 
28.) 

Collection  diaries  are  very  similar  in  form  to  those 
used  for  bills  for  discount,  and  need  no  special  de- 
scription. 

25.  Collateral  register.— The  collateral  register  is 
generally  a  loose-leaf  book  with  an  alphabetical  in- 
dex, ruled  as  in  Figure  27.  A  page  is  given  to  each 
account,  and  the  balance  should  always  show  the 
amount  of  notes  held  as  collateral.  The  collection 
diary  is  used  to  diarize  collateral  notes,  the  entries  be- 
ing made  in  red  ink  to  distinguish  them  from  ordi- 
nary coUections.  Where  a  large  number  of  collater- 
als are  received  from  customers  they  can  be  listed  on 
separate  sheets  and  the  totals  only  entered  in  the  reg- 
ister (Figure  28). 

26.  General  statement  books.— In  connection  with 
the  monthly  return  to  the  government  each  branch 
forwards  to  its  head  office  a  complete  financial  state- 
ment of  its  affairs  at  the  close  of  business  on  the  last 
day  of  the  month.  This  is  obtained  from  the  general 
ledger,  and  a  copy  of  the  statement  is  made  on  a  book 
called  the  general  statement  book.  The  general  led- 
ger is  also  balanced  weekly,  say,  on  the  8th,  I5th  and 


196 


BANKING  PRACTICE 


ni 


t' 


n; 


28rd  of  each  month,  and  a  statement  sent  to  the  head 
office  either  in  exact  fonn  or  in  even  thousands,  the 
latter  method  being  sufficiently  close  for  all  general 
purposes. 

27.  Balance  hook. — The  balance  book  is  used  to 
record  the  trial  balances  and  adjustments  of  the  dif- 
ferent accounts  in  the  office.  The  balances  should  be 
taken  off  on  loose  leaves  and  filed  in  a  binder,  either 
continuously  in  chronological  order,  or  consecutively 
under  tagged  divisions,  one  for  each  class  of  balance. 
The  divisions  would  be  made  for  the  various  ledger 
balances,  draft  accounts,  list  of  loan  and  trade  bills, 
cash  items  account,  etc. 

28.  Overdraft  register.— It  is  very  important  that 
the  manager  should  be  fully  informed  of  the  amount 
and  nature  of  the  overdrawn  accounts  in  his  office. 
This  register  should  be  written  up  each  morning  and 
placed  on  the  manager's  desk  so  that  he  may  have 
before  him  a  daily  indicator  of  the  status  of  accounts 
to  serve  as  a  guide  in  extending  further  business. 

29.  Discrepancies  book. — Canadian  banks  are  very 
strict  in  their  rules  regarding  the  correction  of  errors 
in  the  books,  any  erasures  being  absolutely  forbid- 
den. Errors  discovered  immediately  by  a  clerk 
should  be  neatly  cancelled  in  ink  and  the  correct  fig- 
ures entered  above.  All  other  corrections  must  be 
made  by  a  reversing  entry  thru  the  cash  book;  full 
particulars  must  be  entered  in  the  discrepancy  book 
and  compared  and  initialed  by  the  manager  or  ac- 
countant. 


BRANCH  RECORDS 


197 


REVIEW 

What  is  the  principal  book  in  bank  aecountinir  ?     Whv  ?     Wh«t 
books  are  added  as  the  bank  grows?  *  ^  "** 

Make  a  list  of  the  books  used  in  a  falrlv  l«rc».  K,-«  u      j  . 
dicate  U,e  importance  of  the  record  Lpulf  eacT  '""'  ^"'  "" 

What  »  the  legal  value  of  accounts  kept  in  loose  leaf  form? 

How  are  remittances  for  collections  made  to  other  banks™" 

Why  are  all  correspondents'  accomits  not  kept  at  a  branch^ 


CHAPTER  V 


DEPOSIT  BUSINESS 

1.  New  accounts.— As  a  rule,  no  new  account  is 
opened  in  a  bank  except  under  the  authority  of  the 
manager  or  accountant,  expressed  by  initials  on  the 
deposit  slip.  In  other  words,  the  privilege  of  a  check- 
ing account  should  be  extended  only  to  persons  who 
are  known  to  be  of  good  character  and  reputation, 
and  therefore  no  account  should  be  opened  with  a 
stranger  until  he  has  been  satisfactorily  identified. 
To  do  otherwise  is  to  leave  an  opening  for  fraud. 
Ledger-keepers  are  usually  held  equally  responsible 
with  the  tellers  for  any  deviation  from  the  regula- 
tions laid  down  in  connection  with  the  opening  of 
new  accounts,  especially  with  strangers. 

2.  Opening  accounts.—'Whtn  an  account  is  opened 
a  specimen  signature  of  the  depositor  duly  witnessed 
should  be  obtained  and  placed  on  file— the  card  sys- 
tem is  the  best— for  ready  reference.  In  the  case  of  a 
firm  or  company  a  specimen  signature  of  each  part- 
ner, or  of  the  property  constituted  signing  officers,  re- 
spectively, should  be  taken.  If  a  power  of  attorney 
is  filed,  a  specimen  of  the  attorney's  signature  as 
such  should  be  placed  on  file. 
Every  customer  opening  an  account  in  the  current 

108 


DEPOSIT  BUSINESS  199 

account  ledger  should  be  provided  with  a  pass-book 
and  a  book  of  checks.    This  does  not  apply,  ho^ 
ever  to  out-of-town  customers,  copies  of  whose  ac- 
counts  are  sent  monthly  usually. 

Care  should  be  taken  in  handing  out  check  books 
and  other  supphes  to  customers.  The  nature  and 
miportance  of  an  account  should  govern  the  size  of 
the  pass-book  and  the  check  book  supplied. 

8.  Particulars  to  be  recorded  in  ledger.— The  full 
name,  designation  or  occupation,  and  address  of  each 
customer  is  written  at  the  head  of  every  page  of  the 
account  in  the  ledger.    If  the  customed  is  f  faler 
m  ^^*' ^"^^«^f '^^  «"d  township  as  well  as  his  post 
office  address  should  be  recorded.    A  concise  descrip- 
tion of  the  personal  appearance  or  other  mark  of 
Identification  of  all  customers  who  cannot  write  their 
names  should  be  noted  in  the  ledger  or  on  the  signa- 
tur3  card.     Special  care  should  be  taken  to  record 
correctly  the  names  of  signing  officers  of  benevolent 
and  friendly  societies,  lodges  and  other  bodies  of  this 
kind,  their  powers  and  other  useful  information. 

In  the  case  of  a  firm,  the  names  of  the  partners 
and  where  there  is  a  special  partnership,  the  date  of 

flwY  "^  ^'  """^''^"^  '"  ^^'  ^'^Ser;  if  a  trust 

estate,  the  names  of  the  trustees  and  in  the  case  of 
orporations,  etc.,  the  names  of  the  officials  author- 
ized  to  sign  checks. 

In  the  --se  of  powers  of  attorney  or  of  bv-Iaws  au- 
tiiorizing  o.ncers  of  incorporated  companies  to  sign 
lor  such  companies  lodged  with  the  bank,  the  record 


soo 


BANKING  PRACTICE 


should  state  the  date  when  the  power  is  granted,  the 
names  of  the  persons  authorized  to  sign,  the  extent 
of  the  power  and  the  limitations  placed  upon  its  use, 
if  any.    Special  sheets  are  usually  supplied  for  re' 
cording  such  information  in  order  to  obviate  the  ne- 
cessity  of  carrying  forward  the  particulars  from  pagt 
to  page;  these  are  inserted  at  the  front  of  the  account 
4.  Partnership  accountg.— The  law  does  not  recog- 
nize  co-partnerships  of  professional  men,  i.e.,  in  con- 
tradistinction to  traders;  therefore,  the  mdividual  sig. 
nature  of  each  member  is  requisite  to  paper  of  all 
kinds.    Otherwise,  if  an  account  is  opened  in  the 
name  of  a  firm  of  solicitor!    architects  or  other  non- 
trading  partnerships,  a  written  agreement  should  be 
taken  (Figure  29),  signed  by  each  of  its  members, 
whereby  they  undertake  to  be  jointly  and  severally 

NON-TRADING  PARTNERSHIP 
SIGNATURE  BY  ANY  MEMBER  TO  BINT) 


To  THE  MaKAOEB 

THE.... 


.191.... 


.BANK 


We,  the  undersigned,  composing  the ...... . . . . . '.  *. .  *. '. '. '. ',  *. . .  firm  of 

~.^«^-i??**;  *^^  "^^  iJi'at  w;*are*'aii*d'irfil*"be'*joiiiU7  lllhh^l 

responsible  to  the Bakk  for  all  transac- 

tlons  entered  into,  or  to  be  entered  into,  with  the  said  Bank  in  the 
JkT^u'  "•"'  *^*^  ^T  ^y  *"y  individual  member  of  the  same,  and 
that  the  signature  of  the  name  of  our  firm  by  any  member  of  the 
same  t>  any  note,  bill,  draft,  check,  receipt  or  other  document  shall 
be  as  binding  on  us  as  if  such  signature  had  been  affixed  by  each  of 
us  respectively  under  our  own  hands. 


FicuBE  39 


(I 


DEPOSIT  BUSINESS  goi 

liable  for  every  transaction,  by  check,  note  or  draft 
signed,  made  or  indorsed,  entered  into  with  the  bank 
bj'  any  individual  member  of  the  co-partnership  in 
the  firm  name,  or  by  any  person  they  may  designate  to 
transact  business  with  the  bank  on  their  behalf.  In 
*he  latter  case  a  differently  worded  form  is  used. 

5.  Cofwersion  of  partnership  into  joint  stock  com- 
m.~The  conversion  of  a  partnership  into  a  ioint 
stock  compary  entails  upon  a  manager  the  immediate 
necessity  of  obtammg  from  them  and  placing  on  file  a 
copy  of  the  company's  by-laws,  so  that  all  transactions 
may  be  made  to  conform  to  legal  requirements.    Also. 
it  should  never  be  overlooked  that  a  partnership  dif- 
fers  from  a  corporation  in  that  the  latter  is  absolutelv 
restricted  by  the  terms  of  its  charter,  and  its  office^ 
by  the  authority  conferred  upon  them  by  the  by-laws. 
Ihe  same  reasoning  necessarily  apphes  to  new  cus- 
tomers who  are  already  joint  stock  companies. 

6.  Joint  accounts.— Where  a  deposit  is  made  to  the 
credit  of  two  parties  jointly,  the  form  which  should 
be  used  is  as  follows:  "John  Smith  and  Jane  Smith, 

r UK  f /^'"''"  ^'^^  ^  declaration  signed  bv  both 
Should  be  taken  m  every  instance  to  the  effect  that  the 
bank  IS  authorized  to  pay  checks  on  the  account  signed 
by  either  or  both.     (See  Figure  30.) 

7.  Accounts  with  married  tvomen.~ln  the  Prov- 
ince of  Quebec,  on  account  of  the  restrictions  imposed 
by  the  law  of  that  province  on  married  women,  it  is 
essential  that  the  fullest  particrlars  o^ould  be  oh- 
tamed  at  the  tune  the  deposit  is  taken.     When  a  mar- 


im 


'I 


m 


BANKING  PRACTICE 


ToTHf  Makaom  *•'•••• 

■'"" BANK 

Dear  Sir:  

You  have  a  deposit  account  standing  in  the  name  of  " 

Yours  truly, 


Ptocis  30  

JOINT  ACCOUNT 

ried  woman  makes  a  deposit,  the  name  of  her  hus- 
band,  with  the  post  office  address  of  each  (in  the  event 
of  their  not  hvmg  together),  should  be  given.  Anv 
other  information  necessaiy  to  identify  or  locate  the 
depositor  should  be  noted. 

HUSBAND'S  AUTHORIZATION 
TO  OPEN  BANK  ACCOUNT 
For  use  in  Quebec 
To  THi  Manaoek  of 

■'"^ BANK 

I  hereby  authorize  my  wife  .  

te"toV.n^if"*  '".''r  *»*"  "amewith  the::::::::': 

WANic;  to  deposit  or  mdorse  for  deposit  to  the  credit  of  V..Vh 


account, 
receive 


.191.... 
Fiouu  31 


DEPOSIT  BUSINESS  j^,,. 

When  opening  such  an  account  it  is  advisable  in 
veo.  instance  to  obtain  the  husband's  authorlation 
to  withdraw  money  (Figure  81),  as  without  Iws   he 
would  be  restricted  to  withdraw  an  amount  not  ex 

^Z^l"^  ?  '"•,  ^  ^^P-'t^  authorrza^n  on 
e«h  withdrawal  would  be  satisfactory,  but  this  is  not 
always  convenient.  "°' 

In  the  Province  of  Quebec  no  married  woman  can 
enter  into  a  contract  sign  or  indorse  a  note,  or  bM 
herself  m  any  way  for  the  benefit  of  her  husband 
Therefore   notes    signed    or   indorsed    by    mai^^ei' 
women  should  be  refused.  marrie . 

The  kw  in  this  respect,  however,  is  not  so  strict  in 
the  other  provinces,  but  recently,  by  a  judgment  of 
he  Supreme  Court,  confirmed  by  the  Privv  CoimcU 
It  was  d..,dcd  that  a  married  woman's  guarant  e  or' 
mdorsement  for  her  husband  is  void  unL    he    iW 
mdependently  (Stuart  ve^us  Bank  of  Montreal  .^ 
^I^     r  '"  *''"*  ^"^^  P'-""''^*  if  it  is  found 

must  hTf'l     ?■"'"*  ""  ^''  '■"*''"'''»  behalf,  care 

her  friends,  of  whom  her  husband  is  not  to  be  one,  and 

^thidT  f-  'V*"""  ^"  ''"^'«'"'''»  "^K"'  adviser, 
mft  adeclaration  from  the  latter  that  she  has  been  so 

WW  f":  '»°^''*  ^  '^^'"  f™™  -very  custome; 
Whose  account  is  an  active  one.    In  every  case  of 


I{ 


I 

* 

t 
I 


204 


BANKING  PRACTICE 


The  Makaoeb 


THE. 


.BANK 


Deab  Sih:  

In  consideration  of  your  lending  money  to  the  underslmed  or  dis- 
counting  for  or  taking  on  deposit  or  for  collection  or  otherwise  from 
the  undersigned  bills  of  exchange,  promissory  notes,  checks  or  other 
securities  payable  at  points  at  which  there  is  no  branch  of  a  cha- 
tered  bank  of  Canada,  you  are  hereby  authoriied  to  forward  the  same 
in Jt  *^  °"  *°/"I  National  Bank,  State  Bank,  private  banker™ 
private  firm,  and  the  undersigned  hereby  undertakes  to  keep  you 
fully  mdemnifled  against  any  loss  arising  from  the  default  or  failure 
of  any  such  bank,  private  banker  or  private  firm  to  account  to  you 
lor  the  said  bills  of  exchange,  promissory  notes,  checks  or  other 
secm-Uies  so  forwarded  or  for  any  sum  or  sums  collected  on  account 

The  undersigned  hereby  waives  every  presentment,  notice  of  dk- 

^h^^L  n"**  P'^v.*^'*  .°J  ^"  ^'""  °^  exchange,  promissory  notes  and 
checks  now  or  hereafter  drawn,  made  or  indorsed  by  the  undersized 
and  now  or  hereafter  deposited  with  or  delivered  to  you  for  collec- 
-^«M*""  •'"*^°""*  *"■  «/  security  or  otherwise.  The  undersigned,  to 
avmd  expense,  requests  you  not  to  protest  such  bills  of  exchanw, 
promissory  notes  and  checks,  and  agree;  not  to  hold  you  or  jof 
agents  liable   for  not  presenting  or  protesting  or  giving  notice  of 

^rfAT*""^"/^  ^Tt^,''^  }"  ^''''°'"'=  «"^  '*"'«•"  as  fully  liable  to  you 
upon  and  for  said  bills  of  exchange,  promissory  notes  and  checks  as 
If  Its  presentment,  protest  and  notice  hereby  waived  were  duly  niude 
ana  given.  ■' 

u7a^t.^Jl?T'^u^  ^"^^K.  «"*0"zes  you  to  debit  the  account  of  the 
."«„rfl.  "''^K  y,""  *'*  u,**"*  «™°""*  °'  a"y  f''"  «f  exchange,  prom- 
hlSf  ^  •""  check  payable  at  your  office  and  which  may  be  now  or 
^^n»irJ'^'^'''^,f^J'^  accepted  by  the  undersigned,  and  with  the 
h^v^n^  H  ""''  •?'"  ?^  exchange,  promissory  note  or  check  whirh 
having  been  previously  credited  to  the  said  account  is  returned  to 

Rnnt  I!  ii"?P'"^'  ^"'^  ,'*'"*'  ""  '"'^'^  '^*'"»es  «"d  expenses  as  the 
»n^.J^A  properly  incurred  in  connection  therewith,  and  the 

«r«noo^nf  *^r'  *^  >-eP«y  t«  the  Bank  the  amount  so  debited  to 
the  account  of  the  undersigned. 

The  above  shaU  bind  the  successors  and  assigns  of  the  undersiened 

"^^^°  " the day  of 

19.... 

FiocRE  32.    Waiver  of  Protest 

charging  a  customer's  account  with  a  returned  or  dis- 
honored bill,  note  or  check,  the  ledger-keeper  should 
immediately  notify  the  customer  by  mail  of  the  debit. 
A  special  form  of  advice  is  usually  used  for  this  pur- 
pose, which  is  written  in  duplicate,  the  original  being 


DEPOSIT  BUSINESS  ^g 

mailed  to  the  customer  and  a  carbon  copy  us^^d  as  a 
voucher  to  be  charged  to  the  account. 

Dishonored  bills,  acceptances  and  the  li ,  e  .harmed 
to  an  account  should  not  be  given  up  unt.'  f|.e  .Eas- 
terner's check  has  been  received  therefor  or  the  ac- 
count verified  and  the  usual  receipt  for  checks  and 
~    vouchers  received. 

If  there  are  not  sufficient  funds  in  an  account  to 
retire  such  items  they  should  be  held  in  the  overdue 
me  until  provided  for. 
9.  The  ledger.~It  is  the  rule  in  most  banks  that  no 
.    ^triesshaU  be  made  in  any  ledger  by  any  officer  other 
I    than  the  accredited  ledger-keeper.    AH  entries  are 
i    made  from: 

(a)  Checks,  acceptances,  drafts,  notes,  etc.,  of  cus- 
tomers. 

(b)  Deposit  slips  initialed  by  the  teller. 

(c)  Debit  slips  for  items  charged  up,  etc.,  initialed 
oy  the  manager  or  accountant. 

The  rules  regarding  loose-leaf  ledgers  should  be 
carefully  followed  both  as  regards  the  current  account 
jcdgers   and   savings   bank   ledgers.^     The   ledger- 
keeper  should  watch  out  carefully  for  customers  hav- 
ing the  same  or  similar  names,  as  there  is  always  the 
danger  of  a  mistake  occurring  between  the  two  ac- 
counts.   In  such  case  it  is  advisable  to  put  a  warning 
notation  on  the  account,  as  well  as  in  the  index,  so  a? 
to  attract  the  attention  of  any  one  looking  up  the  ac- 
count.   All  indexing  should  be  carefuUy  checked. 

» See  Section  3,  Chapter  IV. 


£06 


BANKING  PRACTICE 


10.  Deposit  slips. — The  usual  form  of  deposit  slip 
is  shown  in  Figures  83  and  34.  The  deposit  slip  after 
being  checked,  stamped  and  initialed  by  the  teller 
should  be  handed  by  him  direct  to  the  ledger-keeper. 
The  latter  should  see  that  each  shp  has  been  initialed 
and  stamped  by  the  teller;  he  should  then  post  the 
credit  in  the  ledger  and  enter  the  amount  in  the  cus- 
tomer's pass-book,  initialing  the  entry.  At  the  same 
time  he  should  enter  in  the  pass-book  all  checks  which 
have  been  charged  to  the  account  since  the  book  was 
last  presented  and  insert  the  correct  balance  accord- 
ing to  the  ledger.     No  blank  lines  should  be  left  be- 


llll 


THE  CANADIAN  BANK 
OF  COMMERCE 


CREDIT 


DEPOmXDtY- 


X 

■x 
X 

X 

X. 
X 


1 

a 

4 

5 

10 

20 

SO 


X  100     — 


$ 


-lai. 


FiouEz  33 


THE  CANADIAN  BANK, 
OF  COMMEROB 

MVINQ*  BANK  DEP/WnnPlf 
AaecantHo. 
VwOndllot 


OcQupaiSaa. 


A<Un« 


_m_ 


XI- 

><   «  - 

.X       4      - 

X    10    - 

X    ao    - 

X     50     - 

Xioo    - 

BIlTV 

<>r'\l 

$ 

FiGUl 

IE  34 

same 
which 
k  was 
:!Cord- 
ft  be- 


j«_ 


DEPOSIT  BUSINESS  go7 

tween  the  entries,  or  between  the  entries  and  addi- 
tions of  the  debit  and  credit  columns 

The  teller  should  not,  when  he  has  received  a  de- 
posit return  the  deposit  slip  to  the  customer,  that  he 
may  hand  it  to  the  ledger-keeper  for  entry  or  for  any 
other  reason.  To  do  so  would,  obviously,  be  danger- 
ous.  ° 

11.  Money  received  after  hours.-Frequontly 
money  is  received  by  the  teller  too  late  in  the  after- 
noon  o  be  entered  on  the  books  on  that  day.  In  that 
case  It  IS  the  usual  rule  to  require  the  teller  to  enter 
It  m  his  blotter  for  the  following  day  and  hand  the 
deposit  shp,  after  initialing,  to  the  accountant,  who 
will  have  It,  If  a  customer's  deposit,  entered  in  the 
edger  at  once.     This  practice  is  foUowed  in  order 

that  no  deposit  may  remain  overnight  urn        led  and 
entirely  in  the  hands  of  one  officer. 

12.  Customers'  pass-books.~The  teller  should  not 
make  any  entry  in  the  pass-books  of  customers,  or  in 
any  of  the  books  of  the  bank  other  than  his  blotter  and 
balance  book. 

Pass-books  are  collected  from  customers  at  the  end 
of  each  month  in  order  to  be  written  up  and  balanced 
on  the  last  day  of  the  month.     The  work  is  usually 
done  on  the  evening  of  the  last  day  of  the  month, 
when  the  entire  staff,  with  the  exception  of  the  teller. 
ass.sts  with  the  work  in  order  that  the  pass-books  may 
'.e  ready  for  the  customers  the  following  morning, 
^vuiio  the  teller  takes  no  part  in  writing  up  and  bal- 
ancing customers'  pass-books,  he  may  assist  in  com- 
XVI— cia 


SOS 


BANKING  PRACTICE 


paring  the  checks  with  the  entries  in  the  books  after 
they  are  balanced.  The  manager  or  accountant,  pro- 
vided the  latter  does  not  also  act  as  teller  or  ledger- 
keeper,  afterward  compares  the  balances  in  the  pass- 
books with  the  corresponding  balances  in  the  ledger, 
attesting  the  comparison  by  placing  his  initials  oppo- 
site the  balance  in  the  ledger,  and  against  the  balance 
carried  forward  in  the  pass-book. 

18.  Customers'  certification  of  accounts. — Each 
balanced  pass-book  when  delivered  to  a  customer 
should  be  accompanied  by  a  certificate  (Figure  35), 
stating  the  amount  of  the  balance  and  the  number  of 
checks  returned.  The  checks  may  be  returned  at  the 
same  time  if  the  customer  or  his  attorney  is  prepared 
to  compare  these  with  the  pass-book  and  sign  the  cer- 
tificate at  the  bank  counter;  otherwise  the  certificate 
should  be  signed  and  returned  to  the  bank  before  the 
checks  are  surrendered. 


THE BANK 


.191. 


The  undersigned  hereby  agrees  with  the 

Bank  that  at  the  close  of  business  on  the day 

2' tbe  balance  of  the  accounts  and  dealings 

between  the  undersigned  and  the  Bank  is  the  sum  of 

Dollars  in  favor  of  the — l££]L_ 

100  undersigned. 

And  in  consideration  of  the  account  of  the  undersigned  as  a  cus- 
tomer of  the  Bank:  being  not  now  closed,  and  subject  to  the  correc- 
tion of  clerical  errors  (if  any),  the  Bank  is  hereby  released  from 
all  claims  by  the  undersigned  in  connection  with  the  charges  or 
credits  in  said  accounts  and  dealings  up  to  said  day. 

The  undersigned  hereby  acknowledges  receipt  of  the  checks  charged 
in  said  accounts. 

N.B. — ^TTiis  receipt  must  bo  signed  by  the  Cuatomer  or  his  Attomer. 

Figure  35 
Pau  Book  CssTiFiCAn 


DEPOSIT  BUSINESS  ggg 

rendered.    It  may  be  necessary  to  make  exceptions 
m  special  cases,  when  vouchers  should  be  3uZ 

RECEIVED  from  Tme 191.... 

in   word.  — not  ?"«   vouchers   for  amounts  charted"  fn' mw„"  "■       **'" 

fljtnre..  in   the   books   of  the   saiH    R«V,u   ^     •    '"y/o"r  account 

......       l^f  "*^  "°"*^  °^ 

FiouEE  36  

compared  with  the  pass-book  or  copy  of  *he  custom- 
er-s  accoun.  by  a  second  officer  before  being  ma^H 
so  that  m  event  of  a  loss  in  transit  or  of  a  disputewith 
a  customer,  the  bank  may  be  able  to  provelat  the 
vouchers  were  dispatched.    In  every  case  in  wh  eh 

S  t ""'  n  •"'""  *^  "^^'P*^'  obtained  tS 
should   be   sent   by  registered   mail.    After   beina 

signed  the  certificates  should  be  checked  with  the  led- 
ger  by  the  manager  or  accountant,  who  should  place 
h.s  mitials  and  the  number  of  the  vouchers  opposiS 
each  balance  in  the  ledger.  opposite 

As  this  certificate  is  equivalent  to  an  adjustment 
of  the  account  between  the  bank  and  its  customer," 

SnTS*  *"'*  "  '"-  '""^"•^'  -^  P-«"«  - 

npi!*^'"''^*'  "*""'"*'  f'-"^— Fraud  has  been  per- 
petrated upon  employers  by  confidential  clerks  mak- 
mg  false  entries  in  a  bank  pass-book,  or  by  keeping  a 

»  fully  within  the  range  of  an  observant  officer's 


l\ 


mo 


BANKING  PRACTICE 


I  ,1 

,  1 


power  for  the  safeguarding  of  the  bank  and  the  pro- 
tection of  its  clients  to  detect  embezzlement  attempted 
by  such  methods.  If  an  account,  operated  under  a 
power  of  attorney,  or  by  one  particular  employee,  is 
frequently  overdrawn,  or  if  anything  of  a  question- 
able nature  occurs  in  the  working  of  the  account,  the 
circumstances  should  be  discreetly  brought  to  the  no- 
tice of  the  principal  by  the  manager. 

As  the  teller  comes  more  into  contact  with  the  pub- 
lic than  any  other  officer  he  has  exceptional  oppor- 
tunities for  observing  things  which  may  be  of  great 
use  to  the  manager.  He  should  train  himself  to  ob- 
serve every  circumstance  connected  with  each  trans- 
action, and  especially  with  any  unusual  occurrence. 
Any  attempt  at  "kiting"  by  means  of  checks  should 
be  reported  at  once  to  the  manager,  who  will  deal  with 
it  as  he  may  consider  advisable.  This  applies  also  to 
accommodation  checks,  indeed,  to  anything  unusual 
or  irregular. 

15.  Certification  of  checks. — Checks  are  accepted 
by  the  ledger-keeper  only  after  they  have  been 
charged  to  the  account  on  which  they  are  drawn. 
Checks  should  not  be  marked  "good"  by  the  man- 
ager or  any  other  officer  unless  previously  debited  to 
the  proper  account,  or  be  crossed  "Negotiable  at  par" 
thru  another  branch  until  accepted. 

No  check  should  be  charged  to  an  account  unless 
there  are  funds  at  credit  to  meet  it,  without  the  au- 
thorization of  the  manager  signified  by  his  initials  on 
the  check.    A  check  which  has  been  altered  or  erased 


DEPOSIT  BUSINESS  gn 

in  any  vital  part  should  be  refused.     Any  blank  snace 
in  the  amount  should  be  distinctly  filled  in  or  the  cus- 
tomer s  attention  called  to  it.     In  accepting  a  check 
which  has  been  carelessly  filled  in  the  Ldgtr-keeper 
tlTt  T''  *^'  ''''  "^  '^'  ^^^^k  the  amoL 
raised    or  changed  to  a  larger  amount. 
In  the  case  of  a  check  for  which  there  are  funds 
being  returned  for  some  informahty  in  the  indorse- 
ment,  it  should  be  "accepted"  before  being  sent  back 
I  or  correction. 

No  overdraft  should  be  allowed  without  the  per- 
mission  of  the  manager  expressed  in  writing  at  the 
head  o.  the  account  or  by  his  initials  on  the  checks. 

16.  Caching  ckecka.-Telhis  are  generally  forbid- 
den to  cash  or  receive  on  deposit  unaccepted  checks 
on  any  bank  or  any  drafts  or  other  items  unless  they 

wll  r  ""'"'"'  ^l  *'  ""^"S^^-    I"  »P«"«1  eases, 
where  the  manager  deems  it  necessary,  he  may  give 

the  teUers  written  authorization  to  accept  from  cer- 

limit     This  IS  only  done,  however,  when  the  un- 
doubted responsibiUty  of  the  customers  justifies  this 

cwt  P°'l'''"ty  °f  being  victimized  by  confidential 

me-t!  °Vi       !'"P'''y"  "'  *"  ^""^'^  '•"Stomers  by 
means  of  forged  or  raised  checks  should  alwavs  be 

tome  m  mmd.    A  check  for  an  appreciably  larger 

sum  than  ,s  customary,  for  which  cash  is  demanded  in 

payment,  is  m  itself  significant  and  should  excite  sus- 


212 


BANKING  PRACTICE 


picion.  A  check  drawn  payable  to  the  customer  of 
another  bank  should,  in  the  ordinary  course  of  busi- 
ness, be  presented  thru  the  other  bank,  and  such  a 
check,  even  if  payable  to  bearer,  presented  over  the 
counter  for  cash  should  cany  suspicion  on  its  face 
and  suggest  inquiry. 

It  should  always  be  borne  in  mind  by  the  teller  that 
accepted  checks,  bank  drafts,  express  orders  and  cir- 
cular letters  of  credit  are  also  all  liable  to  forgery  and 
alteration;  payments  made  on  the  latter,  especially  to 
strangers,  should  be  limited  to  a  reasonable  amount 
for  traveling  requirements.  If  they  call  for  a  large 
amount  great  care  should  be  exercised. 

Checks  payable  to  corporations  or  wholesale  firms 
should  not  be  paid  over  the  counter  of  the  bank  to 
an  employe  without  express  authority  of  the  company 
or  firm. 

Checks  should  not  be  cashed  for  strangers  until 
they  have  been  satisfactorily  identified;  even  then, 
there  is  not,  as  a  rule,  much  profit  to  a  bank  in  the 
transaction. 

No  identification  is  safe  or  satisfactory  excepting 
the  attendance  at  the  bank  of  a  well-known  and  re- 
sponsible person,  who  indorses  the  check  or  other  in- 
strument in  the  presence  of  an  officer  of  the  bank. 
Any  other  ostensible  identification  or  indorsement 
may  be  fraudulent.  A  person  who  forges  the  sig- 
nature to  a  check,  or  raises  the  amoimt  of  a  draft, 
or  steals  any  negotiable  instnunent,  might  be  pre- 
sumed also  to  forge  a  letter  of  identification  or  an 


DEPOSIT  BUSINESS  gig 

indorsement,  to  serve  the  purpose  of  identification. 
The  safest  course  b  always  to  give  the  bank  the  ben- 
ent  of  the  doubt. 

A  written  identification  which  purports  to  be  that 
of  a  hoteJ-keeper  or  hotel  clerk  is  especially  opon  to 
suspicion. 

Every  check  for  a  large  sum  should  be  particu- 
lar y  scrutinized,  and  the  attention  of  the  manager 
c&iiecl  to  it. 

Customers  or  others  who  are  unable  to  write  and 
who  si^  by  mark  on  checks  or  other  documents, 
should  be  identified  to  the  satisfaction  of  the  teller 
but  m  no  case  should  the  teller  witness  the  mprk! 
which  should  be  attested  by  an  independent  witness, 
not  an  officer  of  the  bank. 

17.  Savings  bank  department— The  rules  to  be  ob- 
served with  respect  to  the  current  account  ledger  are 
applicable  to  the  savings  bank  ledger,  with  the  fol- 
lowing exceptions: 

The  manager  should  take  charge  of  and  keep  under 
lock  and  key  all  blank  savings  bank  pass-books,  and 
issue  them  to  the  ledger-keeper  in  unnumbered  lots  of 
one  or  two  dozen,  as  he  may  think  best,  keeping  a 
record  thereof  and  verifying  them  according  to  the 
new  numbers  when  checking  the  ledger  entries  with 
the  supplementary  cash  book.     Should  it  be  neces- 
sary to  issue  a  new  book  in  continuation  of  an  old  ac- 
count the  ledger-keeper  should  then  and  there  draw 
the  manager's  or  accountant's  attention  thereto.    By 
this  method  it  is  intended  that  the  manager  should 


n* 


BANKING  PRACTICE 


M' 


m\i^ 


f  1 


I;- 


1^ 

,>.  ■  • 

personally  know  that  no  deposit  is  received  for  a  new 
account  without  a  corresponding  credit  to  the  ledger 

The  savings  bank  pass-book  should  be  presented 
when  withdrawals  are  desired  so  that  the  entry  can 
be  made  in  the  book  itself.  Whenever  it  is  necessary 
to  make  an  exception  to  this  rule  there  should  be  no 
question  as  to  the  depositor's  identity,  and  the  man- 
ager should  initial  the  check,  making  note  of  any  par- 
ticulars, especially  the  name  and  address  of  any  out- 
side party  called  in     j:  identification. 

When  a  savings  bank  account  is  closed  the  pass- 
book should  be  returned  and  written  up  in  full  with 
a  heavy  line  ruled  across  the  page  un'lT  the  last  en- 
try, and  filed  away  by  the  ledger- k'.  per  in  a  box 
provided  for  the  purpose. 

18.  Duplicate  pass-books. — Where  the  identifica- 
tion of  the  depositor  is  without  question,  and  the  man- 
ager is  fully  satisfied  that  the  pass-book  has  been  lost, 
the  balance  of  the  account  should  be  withdrawn  by 
check  and  a  new  account  opened  with  a  book  under  a 
new  number.  A  memorandum,  giving  the  circum- 
stances of  the  case,  should  be  made  on  the  old  account 
in  the  ledger. 

19.  Machine  statements. — Nearly  all  the  large  city 
branches  of  Canadian  banks  have  adopted  the  prac- 
tice of  rendering  machine  statements  of  the  custom- 
ers' accounts  in  preference  to  using  pass-books  for 
the  purpose.  The  statement  system  eliminates  the 
dreaded  "pass-book  night"  at  the  end  of  the  month, 
relieves  the  congestion  at  the  ledger  wicket,  enables 


DEPOSIT  BUSINESS 


S15 


the  accountant  or  statement  clerk  to  maintain  a  con- 
stant check  on  the  accuracy  of  the  ledger  balances 
and,  above  all,  lessens  the  chance  of  fraud  and  error 
by  insuring  the  receipt  by  each  customer  of  a  state- 
ment of  his  account  at  regular  intervals,  monthly  or 
weekly  as  desired.  With  the  pass-book  system  a  mis- 
take might  run  for  several  weeks  or  months  thru  the 
failure  of  the  depositor  to  bring  in  his  pass-book  to  be 
balanced.  Where  a  regular  statement  is  sent  an 
error  is  sure  to  be  detected  on  receipt. 

The  adoption  of  the  statement  system  involves  no 
extra  expense  in  the  long  run,  as  the  improved  ser\'- 
ice  to  the  customers  soon  justifies  the  initial  expense 
of  the  stateme.it  machine  and  the  salary  of  a  state- 
ment clerk. 

The  machine  usually  used  is  the  Burroughs  Adding 
Subtracting  Statement  machine  and  the  method  of 
operation  is  very  simple.  ter  the  checks  and  de- 

posits passing  thru  the  current  ledger  have  been 
checked  to  the  supplementary  cash  book  the  first 
thing  in  the  morning,  they  are  canceled  and  handed 
to  the  statement  clerk,  who  lists  them  on  the  various 
statements.  Figure  37  with  the  perforated  balance 
s'ip  to  the  left  is  the  form  in  general  use.  The  op- 
erator first  records  on  the  machine  the  last  balance 
shown  on  the  statement  and,  after  making  all  the  pre- 
vious day's  entries,  debits  and  credits,  extends  the 
balance  to  date.  As  it  is  necessary  to  have  slips  for 
each  entry  the  ledger-keeper  furnishes  the  statement 
clerk  with  a  memorandum  for  each  accepted  ^heck 


t 


fl6 


BANKING  PRACTICE 


If 


I 


h 


outstanding,  which  is  replaced  by  the  check  itself  as 
soon  as  it  comes  in.  The  statements  are  filed  in  in- 
genious trays  so  divided  that  the  balance  slips  of  the 
day's  operative  accounts  project  from  the  general 

PUO/n  BUttWr  4T  OMI  AMD  NCMMT  ANY  OirFUWCI  JN  THI  (TATmCNT  OnmOT  TO  THI  AOeODNTAfn- 


M  ACCOUNT  WfTM 

THE  CANADIAN  BANK,  OF  COMMERCE 


S 


u 

n 

18 


SB 
ST 


^ 


iwTiw  tut  tAw  «»  mr 


MONTM  on. 


UtBH  re  AIHEVUTVS^!^ 
DIMuautiQNdllMl  hUtiel 
OOoUtetloni  Credited  I  IntWMt 
B  lUturatd  Itoma 


nirn 

_  IAlAMI 


BATB  DBP<TilTfl 


dhteka  DtUtad 


-VOUDKERS  RSnmNEO 


Figure  37 


file  of  statements.  Thus  the  active  and  inactive  ac- 
counts for  the  day  are  separated  without  disturbing 
the  alphabetical  or  nimierical  arrangement.  It  is 
therefore  a  simple  matter  to  make  a  comparison  of 


DEPOSIT  BUSINESS 


«17 


f 


the  statement  files  with  the  relative  ledger  balance  if 
desired.  Where  the  employment  of  a  special  state- 
ment clerk  is  not  warranted,  statements  can  be  made 
up  at  regular  intervals  instead  of  daily,  but  the  work 
should  be  so  arranged  that  the  entries  for  only  one 
day  should  be  necessary  at  the  end  of  the  month. 

The  pass-book  is  still  used  in  connection  with  state- 
ment accounts,  but  simply  as  a  receipt  for  deposits 
to  the  customer.  A  special  form  is  generally  used 
with  provision  for  deposit  entries  only. 

Pass-books  will,  of  course,  continue  to  be  used  for 
certain  accounts,  but  the  envelop  system  can  be  used 
to  advantage  for  small  accounts.  An  envelop  spe- 
cially ruled  with  a  progressive  balance  is  kept  entered 
up  from  the  ledger  or  vouchers,  the  checks  being  en- 
closed as  entered.  With  the  exception  of  perhaps  a 
few  entries,  the  statement  is  always  ready  to  be 
handed  to  the  customer  as  opportunity  offers.  This 
method,  combined  with  the  statement  system,  is  of 
great  assistance  in  relieving  the  vaults  of  an  accumu- 
lation of  checks  and  vouchers. 


REVIEW 

What  precautions  are  taken  upon  opening  an  account?  Who 
approves  the  opening  of  a  new  account? 

What  provisions  are  made  in  the  case  of  professional  partner- 
ships ?     Of  jjrint  stock  companies  ? 

To  what  extent  can  the  bank  guard  against  fraud? 

How  is  interest  on  savings  accounts  computed? 

What  is  the  value  of  the  monthly  statement  system? 


in 


m 


CHAPTER  VI 

LENDING  A  BANK'S  MONEY 

1.  Eocperience  the  only  teacher. — David  Harum's 
definition  of  banking,  "Loaning  your  money  and  get- 
tin'  it  back"  presents  the  gist  of  this  chapter  in  a  few 
words. 

A  bank  must  naturp,lly  expect  to  make  some  losses 
in  its  business  but  discrimination  in  making  loans  will 
reduce  these  losses  to  a  minimum.  The  avoidance  of 
losses  is  seldom  a  matter  of  good  fortune,  but  rather 
of  good  judgment,  and  the  time  to  avoid  a  bad  debt  is 
when  the  paper  is  offered  for  discount. 

The  ability  to  recognize  the  difference  between  a 
good  loan  and  a  poor  one  cannot  be  acquired  from 
books  or  even  from  personal  teaching;  it  can  only  be 
gained  from  experience  supplemented  by  other  neces- 
sary qualifications.  True,  there  are  certain  funda- 
mental principles  to  observe  in  analyzing  any  account, 
but,  outside  of  these,  no  two  accounts  can  be  judged 
exactly  alike;  conditions  are  too  varied. 

Certain  qualifications  are  essential  to  a  manager  in 
lending  money.  He  must  be  a  man  of  pleasing  ad- 
dress, able  to  meet  with  and  draw  out  from  men  the 
information  he  desires,  and  above  all  must  be  able  to 
say  no  without  giving  undue  offense.  He  should 
have  a  fair  knowledge  of  accounting,  so  as  to  be  able 

218 


LENDING   MONEY 


219 


to  read  between  the  lines  of  a  statement,  or  detect  a 
discrepancy.  He  should  have  a  good  memory,  sup- 
plemented by  a  record  of  all  essential  information  ob- 
tained verbally  from  a  (customer.  As  a  rule,  it  is  bad 
policy  to  take  notes  during  a  conversation,  as  it  is 
likely  to  restrain  a  customer  from  giving  information 
freely. 

Credit  has  been  defined  as  "A  question  of  ability  to 
pay  coupled  with  an  intention  to  pay."  Both  ability 
and  intention  must  be  assured  in  order  that  the  loan 
may  be  considered  a  safe  proposition;  the  latter  of 
these  requisites  is  one  that  must  be  settled  on  the  basis 
of  past  experience,  habits  of  life,  character  and  the 
like.  If  a  man  has  always  paid  his  debts  and  is  not 
living  beyond  his  means  his  intention  to  pay  v  luld 
be  practically  assured.  The  ability  to  pay,  however, 
is  another  matter  and  much  more  difficult  to  deter- 
mine. 

There  are,  therefore,  certain  facts  that  a  manager 
must  know  in  order  to  determine  whether  or  not  the 
bank  will  be  willing  to  extend  credit  to  a  borrower: 

(1)  Antecedents  and  character  of  a  borrower 

(2)  Nature  of  the  business 

(3)  Organization 

(4)  Competition 

(5)  Business  methods 

(6)  Outside  opinion 

(7)  Net  worth. 

In  addition  to  this  general  information  the  manager 
should  know  what  kind  of  transaction  every  piece  of 


220 


BANKING  PRACTICE 


paper  discounted  by  him  represents,  and  should  make 
a  practice  of  putting  the  following  questions  to  him- 
self: 

1.  For  what  purpose  is  the  bank's  money  to  be  used? 

ft.  Is  the  loan  safe:  would  I  lend  my  own  money  on  the 
security  offered? 

8.  Is  it  a  transaction  that  the  bank  should  undertake  to, 
or  which  can  legally  or  morally  become  a  party? 

4.  Will  the  money  be  used  for  the  purpose  for  which  it  is 
borrowed? 

6.  Will  the  paper  be  met  at  maturity,  and  from  what 
source? 

6.  Would  the  indorser  be  able  to  pay  the  amount,  if 
called  upon  to  do  so,  without  seriously  impairing  his  means? 

To  sum  up,  is  the  transaction  a  good  banking  prop- 
osition? If  all  these  questions  can  be  answered  satis- 
factorily, and  are  corroborated  by  an  analysis  of  the 
borrower's  statement,  the  manager  is  in  a  position  to 
discount  the  paper  if  within  his  discretionary  limits, 
or  otherwise  to  recommend  the  loan  to  the  head  office 
for  authorization. 

A  simple  rule  is  never  to  give  out  the  bank's  money 
without  having  rational  or  common  sense  reasons  for 
knowing  that  it  can  be  repaid  within  a  reasonable 
time.  It  is  the  first  principle  of  banking  science  that 
money  must  not  be  locked  up  in  land,  buildings,  mines 
or  similar  non-banking  ventures,  or  so  lent  that  it 
can  only  be  paid  out  of  future  frofits  by  being  trans- 
ferred to  another  bank. 

2.  Causes  of  failure  in  business. — ^A  study  of  the 


LENDING  MONEY 


221 


principal  causes  of  business  failures  may  be  useful  in 
demonstrating  the  relative  importance  of  the  various 
factors  of  weakness.  The  accumulated  experience  of 
many  years  has  been  shown  by  Bradstreet's  to  prove 
that  a  large  number  of  failures  occur  because  of  de- 
ficiencies in  the  traders  themselves,  rather  than  be- 
cause of  happenings  beyond  their  immediate  con- 
trol. In  Bradstreet's  Journal  for  January  25,  1912, 
eight  leading  causes  were  grouped  under  the  first 
heading,  while  only  three  were  given  as  existing  apart 
from  the  individuals  themselves.  These  causes  are  as 
follows  in  the  order  of  their  importance: 

A. — Due  to  faults  of  those  failing: 

1.  Lack  of  capital 

2.  Incompetence  (irrespective  of  other  causes) 

4.  Fraudulent  disposition  of  property ; 

5.  Inexperience  (without  other  incompetence) 
Neglect  of  business  (due  to  doubtful  habits) 
Unwise  granting  of  credits 
Personal  extravagance 
Speculation  (outside  of  regular  business) 

B. — Not  due  to  faults  of  those  failing: 

3.  Specific  conditions  (disaster,  prolonged  sickness, 

etc.) 

8.  Competition 

9.  Failure  of  others  (of  apparently  solvent  debtors). 

In  1912, 80.8  per  cent  of  the  number  of  failures  and 
80  per  cent  of  the  liabilities  were  due  to  the  shortcom- 
ings of  those  who  failed.  Bradstreet's  gives  the  fol- 
lowing interesting  table; 


6 

7, 
10 
11, 


i 


iiWfl 


ii 

n 


n 


1^'  :f{ 

■         ff:- 
If 


'  ii 

'  i' 


9.9lSt 


BANKING  PRACTICE 


PERCENTAGES  OF  NUMBER  OF  FAILURES  AND  LIABILI- 
TIES IN  THE  UNITED  STAES  AND  CANADA  IN  1911 

AND  1912 
CLASSIFIED  AS  TO  CAUSES 


TTsited  States,  Pqc  Oeat 

Canada,  Per  Oaok 

."FiifttiiBa  Due  to 

Kumber 

liabilitlee 

"Number 

Llahflitietf 

J91S 

1911 

1912 

1911 

1912 

1911 

1912 

1911 

Xuik  of  capiisi 

TttODDlDeteiice 

39:7 

80.2 

16.5 

10.3 

4.6 

2.0 

2.0 

1.9 

1.3 

.8 

Si.i 
27.0 
16.9 
V).6 
4.1 

S.C' 

83.5 
26.8 
13.8 
8.8 
8.0 
1.0 
S.B 

28.3 
23.5 
20.7 
8.9 
2.2 
1.3 
2.2 
4.8 
4.2 
1.2 
A7 

60.3 

16.3 

12.8 

6.7 

5.1 

iS 

1.8 

1.0 

.9 

.8 

.5 

49.S 

18.1 

14.6 

8.1 

2.9 

4.1 

.9 

1.1 

1.1 

.9 

.9 

ASA 

22.8 

8.8 

10.3 

3.5 

8.1 

}-'' 
A 

2.5 
.5 
.4 

47.8 
18  9 

Speclflc  coiidiUoiu__ 
Vrnid 

10.1 
9.fl 
1.5 
2.5 
10 

niflZDerlence 

KMrlfint 

ITnwlM  credlLi 

Comnetltion . 

2.'            1.3 

.6 
1.4 
3.2 
3.1 

FBQnres  of  oQieES 

Bxtnyasamce 

\.i 
.8 
.t 

4.9 

.9 

8.4 

These  percentages  afford  much  interesting  and  in- 
structive information  and  point  definitely  to  the  more 
serious  ills  of  commercial  hfe. 

It  is  at  once  apparent  that  the  most  dangerous  fac- 
tor in  Canadian  business  life  is  the  lack  of  capital, 
which  is  responsible  for  over  50  per  cent  of  the  busi- 
ness failures.  The  lack  of  liquid  capital  is  one  of  the 
most  serious  difficulties  a  bank  manager  has  to  con- 
tend with,  and  he  must  ever  be  on  the  alert  for  its 
appearance.  It  is  a  condition  which  may  arise  at  any 
time.  For  instance,  a  loan  made  to  a  customer  os- 
tensibly for  the  creation  of  liquid  assets  may  be  im- 
properly diverted  into  building,  real  estate  or  other 
fixed  assets.    Lack  of  capital,  altho  the  apparent 


LENDING  MONEY 


223 


cause  of  these  failures,  is  not  necessarily  the  primary 
condition,  but  may  arise  or  be  aggravated  by  any 
of  the  other  causes;  injudicious  buying,  for  instance, 
extravagance  in  living  or  speculation,  may  all  result 
in  this  condition,  without  showing  as  an  apparent 
factor  in  the  failure. 

Incompetence  shows  the  next  largest  percentage  in 
Canada  and,  combined  with  inexperience,  gives  a 
total  of  21.4  per  cent  in  number  pnd  26.3  per  cent  in 
liabilities.  These  particular  causes  assert  themselves 
in  vaiious  ways:  injudicious  buying,  lack  of  organi- 
zation and  various  unwise  business  transactions.  It 
must  be  borne  in  mind  that  a  man  may  be  most  suc- 
cessful in  operating  a  small  business,  but  may  prove 
quite  unfit  to  handle  a  larger  one,  on  account  of  lack 
of  business  education. 

The  other  causes  are  self-evident  reasons  for  non- 
success  in  business  and  call  for  no  particular  com- 
ment. It  is  not  only  necessary  to  keep  these  causes 
of  failures  constantly  in  mind,  but  it  is  advisable  also 
to  watch  carefully  that  the  presence  of  these  causes  in 
an  account  of  the  least  important  does  not  assume 
larger  proportions  or  induce  even  more  serious  con- 
ditions. 

3.  Statement  of  affairs. — Reference  has  already 
been  made  to  the  necessity  for  obtaining  a  knowledge 
of  a  borrower's  net  worth.  This  information  is  ar- 
rived at  by  an  analysis  of  the  business  statement 
which  is  required  from  all  customers  seeking  credit 
from  a  bank, 
xvi-cn 


S24 


BANKING  PRACTICE 


»■  ''a 


Altho  the  practice  of  requiring  statements  from 
borrowing  customers  is  by  no  means  an  innovation  on 
the  part  of  banks,  it  is  only  of  late  years  that  it  has 
been  found  advisable  to  make  the  rendering  of  a 
statement  an  invariable  condition  of  lending  a  bank's 
money.     This  necessity  is  due  to  several  causes;  one 
is  the  rapid  expansion  of  the  country  and  the  opening 
up  of  branches  in  new  territories;  another  is  the  grad- 
ual elimination  of  the  personal  element  in  modern 
business  life,  due  to  the  incorporation  of  old-estab- 
lished firms  into  jomt  stock  companies,  a  shareholder 
in  which  has  only  the  amount  of  his  investment  in  the 
company  at  stake,  and  not  his  whole  fortune  and  the 
honor  of  the  family  name.     The  principal  reason, 
however,  is  no  doubt  a  response  to  the  constant  de- 
mand for  efficiency  and  thoroness  in  all  branches  of 
business  life.     The  granting  of  commercial  credits, 
as  the  keystone  of  the  whole  structure,  has  been  raised 
ahnost  to  the  dignity  of  a  profession.     The  excellent 
work  accomplished  by  the  various  credit  men's  asso- 
ciations in  the  United  States  *  has  naturally  extended 
its  influence  to  Canada,  and  practically  every  business 
house  of  any  importance  has  its  own  credit  depart- 
ment doing  invaluable  work.'' 

^  Much  credit  is  due  to  tlie  late  Mr.  James  G.  Cannon,  President  of 
the  Fourth  National  Bank  of  New  York,  to  whose  unremitting  efforts  in 
arousing  public  interest  in  this  question  may  be  ascribed  the  present  high 
standard  of  credit  requirements  in  the  commercial  world.  Mr.  Cannon  is 
the  author  of  many  interesting  and  exhaustive  articles  and  addresses  on 
the  subject  of  commercial  credit,  and  he  was  instrumental  in  havin?  the 
banks  and  credit  associations  thruout  the  United  States  adopt  a  unifonn 
statement  blank. 
«The   Canadian   Credit    Men's    Association,   altho   only    started  in 


LENDING   MONEY 


226 


In  analyzing  a  statement  it  is  well  to  bear  in  mind 
the  old  saying  that  "A  man  tells  his  hopes  to  his 
banker  and  his  fears  to  his  lawyer,"  and  further,  that 
a  statement  of  affairs  is  often  an  expression  of  opin- 
ion rather  than  a  statement  of  facts. 

In  the  course  of  one  of  his  addresses  on  "Bank 
Credits,"  Mr.  Cannon,  in  an  interesting  and  instruc- 
tive way,  remarked  on  the  necessity  of  an  analyzed 
statement  in  lending  money: 

The  cornerstone  of  credit  may  be  said  to  be  the  requirinff 
from  borrowers  of  statements  of  the  condition  of  their  af- 
fairs.    This  has  now  become  an  accepted  custom  in  the  re- 
lation between  banks  and  borrowers  on  commercial  paper. 
It  has  come  to  be  recognized  that  the  practice  is  of  value  to 
both  the  bank  and  the  borrower,  and  this  may  be  considered 
the  reason  for  its   success.     Furthermore,  the  making  of 
statements  oftentunes  renders  concerns  themselves  awafe  of 
their  weaknesses   in  their  methods  of  operation,  financial 
practices  and  results  of  business.     The  banker,  having  a 
substantial  interest  in  the  success  of  the  customer,  may  fre- 
quently give  wholesome  advice  or  timely  warning  from  his 
wide  experience  in  commercial  affairs  and  his  foresight  in 
monetary  matters. 

A  statement,  however,  which  is  not  submitted  to  analysis 
IS  a  menace.  Because,  first,  if  errors  have  been  made,  if 
lack  of  judgment  on  the  part  of  the  management  of  the 
concern  has  been  shown  which  is  not  brought  to  the  atten- 
tion of  the  borrower,  if  reckless  methods  have  been  indulged 
m  or  any  dishonesty  has  been  practised,  the  very  fact  that 
a  statement  has  been  received  and  accepted  by  a  banker 
euner  lulls  into  a  sense  of  security  the  careless  or  heedless 
Dorrower,  confirms  the  reckless  financial  habit  or  establishes 
the  dishonesty,  if  such  exists.     Frank  and  open  statements, 

hal"S!L!"  "^*^'  i'f  ^^^^  "8  organization  thruout  Canada  and 
M8  already  accomplished  much  exceUent  work. 


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BANKING  PRACTICE 


bearing  upon  their  face  the  evidence  of  a  true  condition  of 
affairs,  are  the  greatest  factors  in  establishing  credit. 
Nothing  will  more  firmly  cement  the  union  between  borrower 
and  banker  than  such  a  statement,  and  nothing  will  be  of 
more  value  to  a  banker  and  of  less  harm  to  an  honest,  enter- 
prising borrower.  Hidden  facts  are  revealed  by  analysis, 
and  skill  in  reading  between  the  lines  is  an  important  part 
of  a  manager's  training.  By  this  means,  weaknesses  may 
frequently  be  discovered  and  proper  steps  taken  to  avert 
trouble  before  acute  difficulty  arises. 

A  large  number  of  statements  will  show  on  their  face  such 
evidence  of  weakness  as  to  require  no  further  investigation. 
This  information,  of  course,  is  valuable  to  bankers,  and 
they  will  at  once  decline  to  extend  these  applicants  any  ac- 
commodation ;  whereas,  if,  on  the  other  hand  they  were  only 
in  possession  of  indefinite  data,  they  might  be  disposed  to 
extend  a  line  of  credit. 

Many  old  firms,  because  they  have  been  in  the  habit  of 
conducting  their  business  without  revealing  their  financial 
affairs  to  any  one,  feel  a  natural  reluctance  to  making  a 
statement  of  their  condition;  but  we  should  bear  in  mind 
the  fact  that  great  and  deplorable  mistakes  have  been  made 
by  banks  in  granting  large  lines  of  credit  to  old  houses  sim- 
ply because  they  had  an  unblemished  record  and  were  sup- 
posed to  be  entitled  to  liberal  consideration. 

Notes,  bills,  drafts,  checks,  book  credits,  or  any  form  of 
obligation  resulting  from  a  credit  transaction,  come  into 
existence,  not  antecedent  to,  but  as  a  consequence  of,  a 
transfer  of  goods  involving  futurity.  Paper  is  purely  fic- 
titious and  illegitimate  which  is  not  the  outcome  of  an  opera- 
tion in  goods;  and  we  are  enabled  to  test  whether  loans  are 
legitimate  or  not  according  as  we  know  whether  the  dis- 
counts are  granted  or  not  for  actual  transfers  of  salable 
goods.  This  test  gives  us  the  means  of  drawing  the  line 
between  sound  and  unsound  banking. 

The  manager  as  a  rule  trusts  too  much  to  his  customer— 
if  the  latter  wants  money,  presumably  he  is  an  ordinarily 
prudent  man,  and  knows  what  to  do  with  it;  he  must  know 


LENDING   MONEY 


stn 


hu  own  business  better  than  his  banker,  and  it  would  be 
presumptuous  in  the  latter  to  undertake  to  guide  him. 
While  this  may  be  true  of  the  well-trained  and  experienced 
merchant,  it  is  very  wide  of  the  truth  with  hundreds  of 
traders  and  small  manufacturers  all  over  the  country. 
There  are  really  very  few  men  anywhere  who  can  be  trusted 
to  handle  prudently  and  safely  unstinted  loans  of  money. 
The  proverb  "Give  him  rope  enough  and  he  will  hang  him- 
self"  fitly  illustrates  the  tendency  of  the  average  trader  to 
get  into  difficulty  when  he  is  too  freely  provided  with  money. 

With  careful  and  prudent  banking,  however,  much  of  the 
mischief  would  be  prevented.  Inflation  is  seldom  developed 
to  a  very  great  extent  without  accommodation  loans,  and 
these  would  be  very  sparingly  indulged  in  if  not  altogether 
avoided. 

Credits  would  be  carefully  scanned  and  risks  divided ;  and 
so  the  skilful  banker,  by  simply  following  safe  rules  in  his 
own  business — rejecting  here  and  encouraging  there — can- 
not help  saving  his  customers  as  well  as  himself  from  much 
trouble  and  loss.  But  in  order  to  do  this  well  he  must  be  a 
man  who  thoroly  knows  his  business ;  of  strong  self-reliance, 
a  man  who  arrives  at  his  opinions  and  judgments  from  ob- 
served facts,  not  from  hearsay,  and  who  is  not  to  be  fright- 
ened into  altering  his  course  to  suit  importunate  and  perhaps 
influential  borrowers. 

4.  Science  of  credit. — The  following  analysis  of  the 
principles  and  rules  which  govern  a  credit  man  in  his 
work  were  suggested  by  Mr.  Cannon: 

PRINCIP1,E8 : 

1.  To  reduce  losses 

2.  To  eliminate  disproportionate  risks 
9.  To  conserve  worthy  interests 

4.  To  war  on  dishonesty  and  incompetence. 

UECHANISM  : 

1.  The  statement  of  condition,  including: 
Assets  and  liabilities 


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S28  BANKING  PRACTICE 

Annual  business  or  turnover 
Net  result  of  business 
Bad  debts 

Commercial  expenses 
Character  and  antecedents 
Special  trade  conditions. 
2.  The  analysis  and  study  of  the  above. 

GUIDING  SULES: 

1.  Quick  assets  only  are  a  basis  for  loans 

S.  Fixed  assets  only  considered  as  giving  an  unknown 
support  to  the  quick  assets 

8.  The  debt  limit  of  the  borrower  has  been  exceeded 
when  his  liabilities  exceed  50  per  cent  of  his  quick  assets 
(the  so-called  60  per  cent  credit  rule) 

4.  It  should  always  be  borne  in  mind  that  there  is  a 
cardinal  difference  between  banking  credit  and  other  kinds 
of  commercial  credit;  you  can  afford  to  run  much  less  risk 
in  banking  than  in  commerce  and  therefore  you  must  take 
much  greater  precautions. 

5.  Form  of  statement. — Altho  for  many  reasons 
it  is  preferable  to  have  a  statement  rendered  on  one 
of  the  standard  forms  supplied  by  a  bank,  the  main 
object  is  to  obtain  information,  and  frequently  a 
statement  made  up  by  a  customer  along  his  own  lines 
may  disclose  weakness  which  a  more  formal  state- 
ment might  not  reveal.  Figure  88  is  a  comprehen- 
sive form  combining  both  a  statement  and  an  appli- 
cation, and  is  adapted  to  the  staten  its  of  private 
individuals,  firms  and  corporations.  It  will  be  noted 
that  each  partner  of  a  firm  is  required  to  sign  the 
statement  and  application. 

The  statement  generally  submitted  to  a  bank  is 
the  annual  statement  of  the  customer's  affairs.     This 


LENDING  MONEY 


229 


should  be  made  at  the  end  of  his  fiscal  year,  when  his 
merchandise  and  raw  material  accounts  are  at  their 
lowest,  and  his  bank  loans  cleaned  up. 

In  any  business  there  should  be  at  least  one  period 
in  the  year  when  the  direct  indebtedness  to  the  bank  is 
fully  paid  up.  This  is  of  vital  importance  both  to 
the  bank  and  the  customer.  Under  normal  condi- 
tions inability  to  clean  up  bank  loans  annually  points 
to  a  lack  of  working  capital,  which  may  be  due  either 
to  the  gradual  change  of  quick  assets  into  fixed  as- 
sets, or  to  injudicious  buying  or  selling.  To  allow 
this  condition  to  become  chronic  is  fatal;  it  should  be 
remembered  that  50  per  cent  of  the  failures  in  Can- 
ada are  due  to  lack  of  capital. 

A  brief  comment  on  the  information  called  for  by 
the  statement  shown  in  Figure  38  will  be  instructive 
It  must  firs*  be  noted  that  what  are  called  "quick  as- 
sets" cons'*      of  cash,  receivables  and  merchandise, 
while  "cu  .  jnt  liabilities"  include  practically  all  in- 
debtedness except  mortgages.     The  ratio  of  liabili- 
ties to  quick  assets  is  usually  the  first  test  of  the 
statement.    The  two  totals  are  therefore  in  line  with 
each  other  for  purposes  of  quick  comparison.    Ex- 
cept in  certain  businesses  such  as  lumber,  grain  or 
other  staples,  the  liabilities  should  not  exceed  50  per 
cent  of  the  quick  assets,  and  as  a  rule  the  former 
should  not  exceed  the  cash  and  receivables,  thus  leav- 
ing the  amount  of  merchandise  on  hand  to  represent 
working  capital. 

6.  Cash.~The  cash  on  hand  should  always  be  a 


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BANKING  PRACTICE 


comparatively  small  amount.  If  large,  the  reason 
should  be  inquired  into,  as  this  means  either  careless- 
ness in  financing  or  that  some  worthless  note  or  hon  is 
carried  as  cash.  Practically  all  the  cash  on  hand 
should  be  carried  in  the  bank,  and  the  balance  main- 
tained should  be  commensurate  with  the  amount  of 
work  which  the  account  involves  to  the  bank. 

Comparison  should  be  made  with  the  bank  ledger 
on  the  same  date,  and  if  outstanding  checks  have  been 
allowed  for  by  an  entry  on  the  liability  side  of  the 
statement,  the  amount  should  agree,  otherwise  the 
deposit  ledger  balance  will  be  the  larger;  if  the  re- 
verse, the  reason  should  be  inquired  into. 

7.  Merchandise.— Stock  on  hand  or  merchandise 
calls  for  most  careful  consideration  and  analysis. 
Old  and  unsalable  stock  accumulates  rapidly,  espe- 
cially under  poor  management,  and  even  if  the  stock 
is  reasonably  new,  its  amount,  if  out  of  proportion 
to  the  total  sales,  may  be  a  burden  to  the  business 
and  prove  a  source  of  weakness.  It  is  important  to 
know  if  the  figures  are  the  result  of  actual  inventory 
at  cost  price,  and  also  on  what  basis  old  or  unsalable 
goods  have  been  included.  In  revaluing  the  mer- 
chandise for  credit  purposes  due  consideration  must 
be  given  to  the  nature  of  the  business.  A  deduction 
of  10  per  cent  is  generally  sufficient  for  staples  such 
as  groceries,  provisions,  iron  and  leather,  while  on 
goods  partaking  of  the  nature  of  luxuries,  or  depend- 
ing for  their  sale  on  changing  fashions  or  seasons, 
there  should  be  a  much  heavier  discount.    It  is  always 


LENDING   MONEY 


235 


advisable  to  look  over  the  stock  as  occasion  offers. 
Another  good  plan  is  to  keep  a  record  of  the  result 
of  local  liquidation  sales  of  goods  and  receivables; 
no  better  object  lesson  can  be  found  as  to  the  reali- 
zable values  of  different  kinds  of  merchandise. 

In  a  manufacturing  business  it  is  necessary  to  know 
the  several  values  of  raw  materials,  finished  goods 
and  goods  in  process  of  manufacture.  Raw  material 
if  not  too  much  broken  in  bulk  is  worth  within  10  or 
15  per  cent  of  the  cost.  Finished  goods,  if  ready  for 
shipment,  should  be  worth  actual  manufacturing  cost, 
but  unfinished  goods  should  only  be  considered  to 
the  extent  of  the  goods  actually  in  process  of  manu- 
facture, as  established  by  the  ratio  between  the  daily 
and  total  annual  output.  Any  balance  over  this 
amount  should  be  inquired  into,  as  under  this  heading 
are  often  inventoried  parts  of  articles  whose  manu- 
facture has  been  discontinued. 

The  amount  of  merchandise  in  a  business  should 
form  a  reasonable  proportion  of  the  annual  turnover. 
Conditions  vary  in  different  trades  and  localities,  and 
it  is  impossible  to  establish  any  standard.  Roughly 
speaking,  however,  the  turnover  of  a  business  should 
be  two  and  one-half  to  three  times  the  working 
capital. 

Ample  insurance  is  necessary  in  any  business. 
Whether  a  bank  is  interested  or  not,  every  customer 
should  be  advised  of  the  wisdom  of  keeping  fully  in- 
sured. If  the  insurance  is  assigned  to  the  bank  the 
schedule  should  be  compared  with  the  annual  state- 


996 


BANKING  PRACTICE 


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ment»  and  all  the  conditions  of  the  policy  carefully 
examined. 

8.  Bills  and  accounts  receivable. — Bills  receivable 
in  the  statement  of  a  Canadian  merchant  are  generally 
few  in  number,  as  practically  all  his  trade  paper  is 
discounted,  or  else  left  with  the  bank  for  collection. 
With  the  facilities  offered  by  the  banks  there  is 
scarcely  any  object  in  holding  paper  in  the  office. 
Under  these  circumstances  a  large  amount  of  bills 
receivable,  in  excess  of  collection  held  by  the  bank, 
should  be  looked  into,  as  it  probably  means  an  ac- 
cumulation of  past  due  or  worthless  paper  or  else 
some  special  transactions  which  should  be  disclosed. 

Accounts  receivable  should  be  inquired  into,  espe- 
cially as  to  the  method  of  allowing  for  bad  and  doubt- 
ful debts.  A  distinction  is  made  in  the  statement 
between  receivables  for  goods  sold  and  receivables 
from  other  sources.  Loans  to  officers,  relatives  and 
friends,  and  other  irregular  transactions  are  fre- 
quently found  in  the  latter. 

Receivables  should  bear  a  reasonable  ratio  to  the 
turnover  and  goods  on  hand.  This  ratio,  of  course, 
would  vary  in  different  trades  according  to  the  terms 
of  sale.  A  business  selling  on  ninety  days*  time 
would  naturally  show  a  higher  proportion  of  receiv- 
ables than  a  business  selling  at  thirty  days. 

9.  Machinery  and  fixtures. — Real  estate,  machin- 
ery and  fixtures  are  known  as  fixed  assets  and  should 
only  be  considered  as  offering  an  unknown  support 
to  quick  assets.    In  fact,  real  estate  should  be  practi- 


LENDING  MONEY 


237 


cally  Ignored  unless  a  direct  and  steady  revenue  is 
denved  therefrom.  In  other  words,  real  estate 
should  be  looked  upon  only  as  something  to  fall  back 
upon  m  case  of  need  and  never  considered  as  a  basis 
for  a  bank  loan. 

In  a  manufacturing  business  both  buildings  and 
machmery  are  constantly  being  converted  into  goods, 
and  proper  allowance  for  depreciation  should  be 
made  each  year  out  of  profits. 

If  the  premises  are  rented  they  should  be  suitably 
located  for  the  business,  and  the  rent  paid  should 
be  m  proportion  to  the  business  done.  Much  de- 
pends, however,  on  the  nature  of  the  business  itself. 
A  drug  or  tobacco  business  could  afford  to  pay  a 
large  rental  for  a  corner  store  because  of  the  quick 
turnover  for  cash.  The  same  rent,  however,  might 
ruin  a  more  profitable  business  with  a  slower  turn- 
over. 

mere  the  premises  are  owned  outright  the  rental 
tes  should  be  applied  on  a  basis  of  interest  and  taxes. 
It  the  valuation  of  the  owner  is  higher  than  the  busi- 
ness can  stand  on  a  reasonable  rental  basis,  the  valu- 
ation is  either  excessive,  or  the  business  should  be 
moved  elsewhere  and  the  property  sold.  The  owner 
must  acknowledge  either  overvaluation  or  poor  busi- 
ness judgment,  if  he  continues  to  do  business  at  a 
more  expensive  stand  than  his  business  warrants. 

The  value  of  the  real  estate  as  security  is  the  price 
tor  which  It  can  be  sold  at  a  forced  sale.  If  the  holder 
Of  a  mortgage  has  to  foreclose,  the  property,  altho 


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BANKING  PRACTICE 


seemingty  desirable  and  well  situated,  depreciates 
enoiTOously,  a  result  which  is  intensified  if  the  mort- 
gage is  to  a  bank.  Experience  shows  that  a  large 
sum  is  consumed  for  overdue  interest,  legal  expenses, 
commissions  and  the  like;  this  should  be  taken  into 
account  in  estimating  the  real  value  of  such  an  asset 
as  a  means  of  paying  off  indebtedness. 

10.  Current  liabilities. — Current  liabilities  gener- 
ally consist  of  amounts  due  the  bank  and  the  whole- 
sale trade  for  goods  purchased.  If  due  to  any  other 
creditors  the  circumstances  should  be  explained.  As 
already  stated,  amounts  due  to  the  bank  should  be 
cleaned  up  at  least  once  each  year  either  by  cash  or 
trade  paper  discounted. 

The  observance  of  a  borrower's  daily  transactions 
and  a  critical  scrutiny  of  his  liability  account  from 
time  to  time,  and  one  year  with  another,  should  reveal 
whether  he  is  progressing  or  otherwise. 

A  comparison  of  the  indirect  and  other  liability  of 
the  customer  on  the  books  of  the  bank  with  the 
amounts  shown  in  his  statement  will  sometimes  dis- 
close an  omission  in  the  latter.  In  one  instance,  a 
branch  held  for  collection  from  other  banks  more 
than  double  the  amount  of  the  bills  given  in  a  state- 
ment. Needless  to  say  the  account  was  not  enter- 
tained. 

Where  amounts  are  due  to  other  than  trade  credi- 
tors, such  as  members  of  the  firm,  relatives  and  em- 
ployes, it  is  a  disturbing  feature,  as  such  loans  arc 
liable  to  be  given  first  consideration  in  case  of  trouble. 


LENDING  MONEY  239 

Should  the  account  be  at  all  weak  in  other  respects 
postponements  of  claim  to  the  bank  should  b^  ob-' 
tamed  from  such  creditors. 

^^ortgages    and    other    factors.-Mortgages 
should  mvariably  be  shown  as  a  liability,  and  The 
relative  real  estate  as  an  asset.    The  equity  alone 
should  never  be  considered.    The  position  of  a  mort- 
gage m  regard  to  taxes,  interest  and  insurance  will 
trequently  warrant  examination, 
.hnnl^'v!""^  i«^Portant  that  all  contingent  liabilities 
should  be  given,  such  as  trade  paper  discounted  and 
paper  indorsed  or  guaranteed.     Such  obligations,  if 
not  disclosed  and  allowed  for,  will  always  be  a  source 
01  menace. 

It  is  useful  to  know  the  amomit  and  disposition  of 
life  insurance  in  force  and,  in  the  province  of  Que- 
bec, the  amount  of  the  marriage  contract  is  material 

iilTy  ""'        ^^"''  ''"'^'  ^"°'  ^"^  ^"  "»«^^"red 

The  information  called  for  by  the  reverse  side 
of  the  statement  figure  No.  38  (pages  232,  233)  is 
self-explanatory,  and  is  pertinent  to  the  consideration 
ot  an  application. 

Every  borrowing  customer  should  provide,  in  his 
WUI.  power  to  his  executors  to  continue  his  business 
after  his  death  until  it  can  be  profitably  liquidated. 
It  a  farm,  the  partnership  agreement  should  contain 
a  similar  provision;  otherwise  the  business  must  be 
Wuidated  without  the  expenditure  of  further 
"moneys.    In  many  cases  this  would  entail  heavy  loss 


III 


i. 


240 


BANKING  PRACTICE 


and,  if  the  bank  were  interested,  the  safety  of  its 
loans  would  be  endangered. 

Where  a  firm  or  corporation  operates  branch  offices 
great  care  should  be  taken  to  see  that  no  cross  draw- 
ing or  sales  are  allowed  to  swell  the  assets.  Many 
losses  have  been  made  thru  the  careless  scrutiny  of 
branch  operations,  especially  where  a  branch  carries 
a  deposit  account  at  a  local  bank.  Check  kiting  is 
one  of  the  first  symptoms  of  the  disease ;  others  quickly 
follow. 

12.  Sundry  information. — No  statement  can  be  an- 
alyzed by  rule  of  thumb.  The  points  brought  out  in 
this  chapter  are  by  way  of  suggestion  only.  To 
many  accounts,  of  course,  they  would  not  all  be  ap- 
plicable. No  unfavorable  fact,  however,  is  too  unim- 
portant to  be  overlooked  and  a  competent  manager 
is  constantly  adding  to  his  knowledge  and  developing 
his  power  of  drawing  inferences  and  making  deduc- 
tions. At  the  risk  of  repetition  the  following  ques- 
tions are  given  and  may  be  found  helpful  in  realizing 
the  varieties  of  causes  which  contribute  to  the  forma- 
tion of  a  borrower's  credit  standing. 

Are  the  borrower's  antecedents  and  character  good? 

Are  his  personal  drawings  from  the  business  large? 

Has  he  ever  failed  or  had  a  suspicious  fire? 

Is  he  well  liked  and  respected  in  the  community? 

Does  he  kite  notes  or  checks? 

Is  he  in  good  health?     His  age? 

Is  he  what  is  known  as  a  "rebater,"  a  man  who  makes  un- 
fair claims  for  goods  in  the  hope  of  getting  rebates  or  other 
concessions? 


LENDING   MONEY 


241 


Can  reliance  be  placed  on  his  statements? 

What  are  his  personal  habits? 

How  does  he  spend  his  evenings  ? 

Has  he  technical  ability  in  his  business? 

Are  his  books  properly  kept? 

p.S::L?f  *""""'  '"^''  »  -<««<'»'  'h-t  -y  not  be 
^Do*.  he  .U.W  hi.  ^.chiner,  t.  become  out  „f  d.te  „«,  i.. 

>m  paper?  ^  padded  with  alow  or  worth- 

?«  hi%'.1«  "^H'-^"  "'  ""  *"''<^  discount,? 
Are  hw  sale,  out  of  proportion  to  his  canital? 

U  h.,  position  improving  year  by  year?  "^ 
?"  j|f  .'.-y '"'^.  "ntif^nt  liawS;? 

A  e  hi  nrofit'*"''^'"  ^™  '"  "-^  statement? 
.alt;        ^"'"*  '"■'  "P™»'  -'•™"t»  in  proportion  to  hi. 

.nram^'nTo'/hralTst"'''  ''""'  ''  "  -"""""^  -- 

"J^&th^^reir:^^^^^^^    -- «--  -» Hi. 

Uoes  he  always.      an  ahead  in  regard  to  hi.  e 
gagements,  and  kno  r  where  thp  m^/     •    .  financial  en- 

^  „,^^he  made  pro^sio^n^ tn^.S;' h'i^  Z^t ... 
Poes  he  advertise  wisely? 


I     ! 


MSt 


BANKING  PRACTICE 


Is  the  line  of  goods  he  manufactures  or  sells  one  which  ii 
easily  affected  bj  changing  fashions  or  seasons? 

How  do  his  annual  sales  compare  with  his  stock  on  hand 
and  bills  payable  and  receivable  accounts? 

On  what  basu  is  the  inventory  taken  and  by  whom? 

Are  his  books  audited  by  a  chartered  accountant? 

18.  Preparing  the  application. — The  consideration 
of  a  customer's  statement  along  the  lines  suggested  in 
the  preyious  sections  should  assist  a  manager  in 
promptly  deciding  whether  he  will  grant  a  loan  or 
not.  A  prompt  "no"  is  often  preferable  to  a  be- 
lated "yes."  The  latter  implies  indecision.  The 
least  indication  of  weakness  in  the  statement  should 
not  be  overlooked.  The  margin  of  profit  in  bank- 
ing is  too  small  to  allow  unnecessary  risk  to  be  taken, 
and  the  bank  should  always  be  given  the  benefit  of 
the  doubt. 

A  reference  book  or  card  index  should  be  kept  on 
the  manager's  desk,  and  any  credit  information  about  j 
customers   and  others,   whether   borrowers  or  not, 
should  be  systematically  jotted  down. 

In  ihe  case  of  larger  firms  submitting  regular  state- 
m^its,  it  is  necessary  to  keep  a  careful  record  year 
by  year  of  the  changes  in  the  statements  and  course 
of  the  account.  It  is  advisable,  whether  the  accoimt 
falls  within  the  manager's  discretionary  limits  or  not, 
to  do  this. 

When  a  loan  is  outside  the  manager's  discretionary 
limits  it  must  be  submitted  to  the  head  office  accom- 
panied by  a  definite  recommendation.    The  latter  is  I 
essential,    Therefore,  as  soon  as  the  manager  decides 


LENDING  MONEY  243 

that  a  loan  of  this  nature  is  desirable,  he  prepares  the 
s^tements  required  by  the  head  offlee  and Trwl  Js 
them  w,th  h,s  letter.  Figure  30  ^Ives  an  exact  ,3 
of  a  eustomer's  statement  with  »,  .ee  at  thrf«,tT^ 
a  revaluation  of  the  assets  by  the  mla^r    VJ 

"n  of  tCr  n     "■  "  ''*''"^'^  """'y''^  -d^compari. 
son  of  the  last  two  statements  on  file,  and  also  Les 

ZZ      ?   """■'"  "'  *''"  ""'•"'■'J'  «'^«>"nt  is  given 

Theironhrr'*'/""*^  "'"^^  '•"'--«- 

U.  TAe  application—The  most  severe  test  of  » 

m  the  writmg  of  a  letter  of  application.  The  rea- 
sons for  recommending  the  loan  should  be  conciselv 
stated  and  no  pertinent  fact  omitted.    In  othe   words 

fack  for  further  mformation  or  missing  particulars 

A  separate  letter  should,  of  course,  £  written  for 

"uritrr  '  ""'  *^  ™"*«™  of  '"e  liabil       and 

i  statement  of :         ''""  '''°"'''  '"*^^  «'-  »  --- 

(a)  The  amomit  of  credit  applied  for; 
Ibeusedf      ^"''™'  '"'  "'''"''  '^'  '«'™°«»  "«  to 

m1  ^^°  *'"'  '"^'"^<'''  «■'"  •>«  required; 

(d)^  When  and  from  what  source  payment  is  ex- 


1    '■  1 


'I;  : 
ji  'l 


Si- ; 


OlT*  f  bU  Kama  or  KaniM  i 
of  ParUMM.  Ac*.  Bnrtn—,  V 


.....Branch 


STATEMENT  OF  THE  AFFAIRS  OF 


Ho. 


.aa  at. 


Aiaeto 


Par  cent 
dadnctad 
to  Mtr'a 

▼atoattona 


J9 


LUbUlttaa 


Sale*  for  past  yeu • 

Lossea        ••       $ 

lottaraoce  on  Uquld  Aaaeta  t 

••  on  Fixed  Aiaeta   •_ 

Real  £atate  Searched 


MANAGER'S  ABSTRACT  OF  ABOVE. 
WITH  HIS  VALUATION  OF  ASSETS 


TJqiiM  Amciti. 
Oaab.  Bllla  ReeeiTable 

and  Accounts 

Hercbandlae  held  for 
Sale. 


Mlaeellaneous  moTsble 

property 

Fixed  AjsetK 


Floating  Liabilities: 
To  Bank  Acconnta  Parablo. 
Billa  Payable. 


To  Sondry  Parties. 


Mortgage  Debts: 
Snrphis. 


XJablUty  as  Xodorser  or  Ouar' 
antor  not  Incloded  aboTe, 
namely  on: — 
Trade  ]?aper  in  Oostomer's 

Aceonnt % 

On  other  Accounts  at 
Branch. 


On  other  Accounts  else- 
whara 


FiocKi  39 
844 


wHwr  HMI  Ettete.  eDcnmbered. 


riMtlnffLlabiUties: 

Total  Xloathiff  UabUltiea 
JBartgatre  Debts; 

Total  Mortgave  Debta 

/!i^-S2;s:f  J"  fef-w  A«ef 


FioriE  40 
245 


246 


BANKING  PRACTICE 


h 

Ml 

r      t 

s 


Sometimes  preliminary  letters  may  have  been 
written  giving  information  on  some  of  these  points, 
but  the  final  letter  should  nevertheless  contain  full 
particulars,  and  reference  to  previous  letters  or  state- 
ments should  not  be  made  merely  to  save  the  trouble 
of  repeating  information,  except  in  special  and  in- 
volved cases.  It  is  much  more  economical  in  time  and 
labor  for  a  branch  manager  to  set  forth  the  case 
fully,  rather  than  to  put  the  head  office  to  the  trouble 
and  delay  of  looking  up  references. 

The  reasons  leading  to  the  recommendation  and  any 
criticism  of  the  account  should  be  carefully  and  sys- 
tematically assembled  and  the  information  set  out  in 
due  order  and  sequence,  each  subject  being  discussed 
in  a  separate  clause,  and  all  to  be  said  on  a  particulai 
subject  brought  together  in  one  place  as  far  as  pos- 
sible. This  can  only  be  accomplished,  as  a  rule,  by 
the  letter  being  first  drafted  and  carefully  corrected 
before  it  is  written.  If  the  application  is  from  a 
new  customer  the  cause  of  the  change  in  his  bank 
account  should  be  reported,  and  if  the  application  is 
for  a  line  of  trade  paper  a  list  of  the  trade  bills  under 
discount  with  his  previous  bank  should  accompany 
the  letter. 

If  these  simple  requirements  are  carefully  com- 
plied with,  the  head  office  will  be  m  a  position  to 
accord  a  prompt  authorization  or  otherwise  of  the 
application. 

15.  Guarantees. — Guarantee  bonds  are  a  danger 
ous  form  of  security,  liable  to  be  voided  by  what  may 


LENDING   MONEY  ^^ 

appear  to  be  a  most  trivial  incident  not  affecting  in 
any  way  the  equities  of  the  situation. 

A  special  form  used  by  banks  is  given  in  Figure 
41  In  cases  where  a  guarantor  is  also  a  creator 
of  the  borrower  it  is  generally  the  custom  to  obtain 
a^postponement  of  the  former's  claim  in  favor  of  the 

It  must  be  borne  in  mind  that  a  bond  of  guarantee 
would  become  ineffective  in  all  such  cases,  e^n  if  the 
business  of  a  firm  or  individual  were  converted  into  a 

tinued  '^""^  ^'''^^''  '*^^^^  '^°"^^  ^^  *^'*- 

16.  Cvstomers'  mlls.-Under  ordinary  circum- 
stances  and  speaking  generally,  the  business  in  which 
a  °^«n  IS  engaged  at  the  time  of  his  death  must  be 
bquidated  by  his  executors,  or,  if  he  is  a  member  of 
a  farm,  by  the  surviving  partners,  without  the  expen- 
diture of  further  moneys.  In  many  cases,  this  w^ld 
entail  heavy  loss. 

For  this  reason,  it  is  very  desirable  that  every  bor- 

his  will  that  his  executors  be  empowered  to  continue 
his  business  after  his  death  until  it  can  be  profitably 
liquidated.  Deeds  of  partnership  should  also  make 
similar  provisions. 

The  borrowing  powers  of  executors,  if  they  have 
any  are  determined  by  the  will  of  the  testator.  Upon 
the  decease  of  a  borrower  the  conditions  of  the  wiU 
Should  be  ascertained,  and  unless  authority  is  specially 


[:i  * 


1^ 
I 


i  i  i 


OCAHAXTEE   BOND  AXD   FOflTPONEMKNT  OT  CIJUM 

To  THE  Manager 
BANK 

In  Considesation  of  The  Canadian  Bank  of  Commerce  agreeing  to 

deal  with herein 

referred  to  as  "the  customer,"  in  the  way  of  its  business  as  a  Bank, 
the  undersigned  hereby  jointly  and  severally  guarantee  payment  to 
the  Bank  of  the  liabilities  which  the  customer  has  incurred  or  is 
under  or  may  occur  or  be  under  to  the  Bank,  whether  arising  from 
dealings  between  the  Bank  and  the  customer,  or  from  other  deal- 
ings by  which  the  Bank  may  become  in  any  manner  whatever  a 
creditor  of  the  customer;  (the  liability  of  the  undersigned  here- 
under being  limited   to  the  sum   of dollars 

with  interest  from  the  date  of  demand  for  payment  of  the  same). 

And  the  undersigned  agrees  that  tlie  Bank  may  grant  extensions, 
take  and  give  up  securities,  accept  compositions,  grant  releases  and 
discharges,  and  otherwise  deal  with  the  customer  and  with  other  par- 
ties and  securities  as  the  Bank  may  see  fit,  and  may  apply  all 
moneys  received  from  the  customer  or  others,  or  from  securities, 
upon  such  part  of  the  customer's  indebtedness  as  it  may  think  best, 
without  prejudice  to  or  in  any  way  limiting  or  lessening  the 
liability  of  the  undersigned  under  this  guarantee. 

And  this  guarantee  shall  apply  to  and  secure  any  ultimate  balance 
due  to  the  Bank,  but  the  6ank  shall  not  be  bound  to  exhaust  its  re- 
course against  the  customer  or  other  parties  or  the  securities  it  may 
hold  before  being  entitled  to  payment  from  the  undersigned  of  the 
amount  herelnr  guaranteed. 

And  that  this  shall  be  a  continuing  guarantee,  and  shall  cover  all 
the  liabilities  which  the  customer  may  incur  or  come  under  until  the 
undersigned,  or  the  executors  and  administrators  of  the  undersigned, 
shall  have  given  the  Bank  notice  in  writing  to  make  no  further  ad- 
vances on  the  security  of  this  guarantee. 

And  rr  is  Aqieed  that  this  guarantee  shall  be  good  notwithstanding 
any  change  or  changes  in  the  name  of  the  customer,  or  any  change 
or  changes  in  the  membership  of  the  customer's  firm  by  death  or  by 
retirement  of  one  or  more  of  the  partners,  or  by  the  introduction 
of  one  or  more  other  partners. 

Any  debts  or  claims  against  the  customer  now  held,  or  which  may, 
during  the  continuance  of  this  guarantee,  be  held  by  the  imdersigned 
or  any  of  them  are  for  the  further  security  of  the  Bank,  and  as  be- 
tween the  undersigned  :  .id  the  Bank  are  hereby  postponed  to  the 
debts  and  claims  against  the  customer  now  held  or  which  during  such 
continuance  may  be  held  by  the  Bank,  and  until  the  Bank  has  re- 
ceived payment  in  full  of  its  said  debts  and  claims  any  such  debts 
and  claims  of  the  undersigned  or  any  of  them  shall  be  collected, 
enforced  or  proved  subject  to  and  for  the  purpose  of  this  agree- 
ment, and  any  moneys  received  by  the  undersigned  or  any  of  them 
in  respect  thereof  shall  be  received  as  trustee  for  the  Bank  and 
shall  be  paid  over  to  the  Bank  on  account  of  its  said  debts  and 
claims. 

The  GiTAaAKTEE  and  Aobeement  on  the  part  of  the  undersigned 
herein  contained  shall  extend  to  and  enure  to  the  benefit  of  the  assijms 
of  the  Bank. 

Given  Under  Seal  at this day  of 

A.  D.  191....  ' 

Witness: 

FlOURE  41 
248 


LENDING   MONEY  249 

given  thereunder  the  executors  cannot  legally  borrow 
or  renew  any  note  which  may  be  running 

17.  Power  of  attorney, -The  original  of  any  power 
of  attorney  should  be  permanently  lodged  with  the 
bank   unless  it  has  been  filed  in  a  city  or  county 
registry  office,  in  which  case  a  certified  copy  under 
the  hand  and  official  seal  of  the  registrar  may  be 
accepted.    A  notarial  copy  of  a  power  of  attorney 
which  remams  in  the  hands  of  an  attorney  cannot  be 
acted  upon.    As  a  rule,  however,  the  powers  of  attor- 
ney  are  executed  on  forms  provided  by  the  bank 
(Figures  42  and  43).     A  power  of  attorney  must 
not  be  Witnessed  by  the  party  in  whose  favor  it  is 
drawn  and,  as  a  general  rule,  should  be  delivered 
to  the  bank  by  the  grantor  and  not  by  the  attor- 
ney. 

Where  an  instrument  is  executed  before  a  notary 
pubhc  m  the  province  of  Quebec  and  the  original 
left  on  record  in  his  office,  a  copy  certified  by  the 
same  notary  may  be  accepted.    A  notary  in  the 
province  of  Quebec  is  a  public  officer  and  authorized 
to  act  as  a  depositary  for  such  documents. 
^    J  in  mind  always  that  the  authority  conferred 
by  a  pcwer  of  attorney  is  closely  circumscribed  to  the 
acts  which  it  specifies  by  the  most  strict  reading. 
Unless  specially  authorized  an  attorney  for  a  cus- 
tomer cannot  hypothecate  collateral  to  the  bank 

An  overdraft  created  by  check  signed  by  an  attor- 
ney IS  not  binding  upon  the  principal  unless  the  power 
ot  attorney  granted  by  him  expressly  specifies  that 


if 


mt- 


it 


W>W»   OF   ATTOINry 

UHITED   rORX 

WITH    POWB*    to    OTBBDBAW 


The  words  in 
italics  may  be 
ruled  out  if  the 
Attorney  is  not 
to  have  power 
to  OTerdraw. 


Know  aix  Men  by  thru  PugBMn  that 


Fill  in  here 
the  name,  busi- 
ness and  ad- 
dress  of  the 
Attorney. 


Fill  in  here 
the  name,  busi- 
ness and  ad- 
dress  of  the 
Customer. 


of. 


has  been  made,  constituted  and  appointed,  and  is  by 
these  presents  made,  constituted  and  appointed  the 
true  and  lawful  Attorney  of  the  undersigned 


of. 


for  and  in  the  name  of  the  undersigned  to  indorse  all 
or  any  Bills  of  Exchange,  Orders,  Drafts  and  Checks 

for  deposit  with  the Bakk,  to  draw  and 

sign  all  Checks,  Orders  and  Drafts  for  payment  of 
money  on  the  said  Bank,  and  to  overdraio  the  ac- 
count of  the  undertigned  with  the  tame  if  he  ehall 
think  fit;  to  arrange,  settle  and  balance  all  books 
and  accounts,  and  to  sign  the  Bank's  form  of  settle- 
ment of  balances  and  release;  and  generally  for  and 
in  the  name  of  the  undersigned,  to  transact  with  the 
said  Bank  any  business  that  may  be  necessary  in 
the  premises;  and  all  that  the  said  Attorney  shall 
do  by  virtue  hereof  is  hereby  ratified  and  confirmed. 
The  said  Bank  may  continue  to  deal  with  the  said 
Attorney  under  this  power  until  notice  of  the  revo- 
cation hereof  has  been  given  in  writing  to  the  Man- 
ager or  Acting  Manager  of  the  Branch  of  the  said 
Bank  at  which  the  account  of  the  undersigned  is 
kept,  and  until  such  notice  in  writing  has  been  given, 
the  acts  of  the  said  Attorney  hereunder  with  the 
said  Bank  shall  be  binding  on  the  undersigned. 

Iw  WITNESS  WHEBXOF  thcsc  prcscnts  have  been  exe- 
cuted by  the  undersigned  at the 

day    of One    Thousand    Nine    Hundred 

and    

WrrNEss 


FiouiK  49 
260 


rowtm  or  Ammrxr 
rnix  roKM 


Kkow  All  Mkw  «t  thesx  Puasim  that 


FiU  in  here 
the  name,  busi- 
ness and  ad- 
d  r  e  I  ■  of  the 
Attorney. 


of. 


FiU  in  here    .. 
the  name,  busi- 
ness   and    ad-     '1 
dress  of  the    °' 
OusUmier. 


has  been  made,  constituted  and  appointed,  and  is  "bv 
these  presents  made,  constituted  and  appointed  the 
true  and  lawful  Attorney  of  the  undersigned 


for  and  in  the  name  of  the  mdenig^td  to  drw,' ac. 
cept,  ngn.  make,  indorse,  negotiate  and  diepoee  of 
all  or  any  Bilb  of  Exchange.  Promiwry  Notes, 
Checks,  and  Orders  for  the  payment  of  Money;  to 
pay  and  receive  all  moneys  and  to  gi*e  acquittances 
for  the  same;  to  discount  or  deposit  with  or  transfer 

ci  ^*    n'V   •V ^^^'^  ""y  negotiable  paper, 

f.i'^if'  ?"";J«/'«i  other  securities;  to  draw  and  sign 
all  Checks,  Orders  and  Drafts  for  payment  of  money 
on  the  said  Bank,  and  to  overdraw  the  account  of 
the  undersigned  with  the  same  if  he  shaU  think  fit- 
to  arrange,  settle  and  balance  all  books  and  accounts! 
and  to  sign  the  Bank's  form  of  settlement  of  bal- 
ances and  release;  and  generally  for  and  In  the  name 
of  the  undersigned  to  transact  with  the  said  Bank 
any  busmess  he  may  think  fit;  and  all  that  the  said 

.1.d°SrSS  '^  ''  ''""^  ''^  •"  »'«-''^  "«««» 
The  said  Bank  may  continue  to  deal  with  the  said 
««n  K  ^^  under  this  power  until  notice  of  the  revoca- 
tion hereof  has  been  given  in  writing  to  the  Manager 
or  Acting  Manager  of  the  Branch  of  the  said  Bank 
at  which  the  account  of  the  undersigned  is  kept, 
and  until  such  notice  in  writing  has  b^n  given,  ttie 
acts  of  the  said  Attorney  hereunder  with  the  said 
Bank  shall  be  binding  on  the  undersigned. 
Ik  witness  whereof  these  presents  lave  been  exe- 
cuted by  the  undersigned  at  


.the 

One  Thousand  Nine  Hundred  and 

WiTKESB 


day    of. 


Fiouax  43 
261 


252 


BANKING  PRACTICE 


it  confers  power  to  overdraw,  for  which  the  principal 
undertakes  to  be  responsible. 

When  a  power  of  attorney  is  revoked  the  revoca- 
tion may  be  acknowledged,  but  under  no  circum- 
stances should  a  power  of  attorney  once  lodged  with 
a  bank  be  surrendered. 

A  power  of  attorney  is  terminable  by  the  following 
causes : 

(a)  Revocation  by  the  principal 

(b)  Renunciation  by  the  attorney 

(c)  Dissolution  of  a  partnership 

(d)  Loss  of  civil  rights  or  civil  capacity  (as  inter- 
diction) 

(e)  Death  of  the  principal 

(f )  Bankruptcy  of  the  principal. 

Care  should  be  taken  to  procure  properly  certified 
copies  of  the  by-laws  or  resolutions  authorizing  offi- 
cials to  sign  for  incorporated  companies,  municipali- 
ties and  other  similar  bodies  These  should  be  en- 
tered in  the  register  in  the  sair.f  manner  as  the  powers 
of  attorney. 

The  properly  authorized  signing  officers  of  a  muni- 
cipal corporation  whose  checks  are  a  correct  charge 
against  a  credit  balance  may  not  create  a  debt,  which 
an  overdraft  would  be,  unless  authorized  by  by-law 
to  do  so.  However  temporary  an  advance  to  a  cor- 
poration may  be,  a  by-law  or  resolution  authorizing 
it  must  be  passed  and  a  certified  copy  of  it  should 
invariably  be  lodged  with  the  bank.  Such  resolution 
should  state  the  source  from  which  payment  is  to  be 


LENDING   MONEY 


258 


made,  such  as  taxes,  for  example,  and  should  also 
provide  for  renewals,  if  necessary. 

REVIEW 

What  should  be  the  basis  of  credit  extension  by  a  bank? 

Why  IS  a  statement  of  affairs  of  the  borrowing  concern  neces- 
sary m  extending  credit? 

What  principles  and  rules  should  govern  the  credit  man? 

What  are  quick  assets?     Fixed  assets?     Current  liabilities? 
a  crrdit  riskt"    """^  *"""*"'  HabUities  indicate  a  man's  worth  as 

What  is  the  value  of  a  guarantee  bondf 
^Why  should  a  bank  retain  the  original  of  any  power  of  attor- 


1^%?^ 


ill 


I 


m 


Mr,  t 


CHAPTER  VII 

CLASSIFICATION  OF  LOANS 

1.  Call  loans. — The  subject  of  ca!]  loans  in  Canada, 
or  elsewhere,  as  an  asset  of  the  bank  has  already  been 
dealt  with  in  Chapter  VI,  Part  I,  and  it  is  only  neces- 
sary to  describe  briefly  the  methods  of  making  such 
advances  in  Canada.  These  loans  are  generally  made 
to  brokers  on  satisfactory  stocks  and  bonds  listed 
in  the  local  market,  and  with  a  margin  of  about  20 
per  cent  and  10  per  cent,  respectively. 

Two  margin  tests  should  be  applied:  first,  a  20 
per  cent  margin  of  security  above  the  amount  of  the 
loan;  second,  ten  points  per  share  less  than  the  market 
value  of  the  stock.  The  first  test  insures  an  ample 
margin  on  high-priced  stock,  and  the  second  discrimi- 
nates against  low  non-dividend  paying  stock.  For 
instance,  20  per  cent  on  stock  selling  at  $80  per  share 
would  mean  a  margin  of  $6  per  share  as  against  $10, 
or  83%  per  cent,  called  for  by  the  second  rule. 

Figure  44  is  the  form  in  general  use,  and  combines 
in  one  the  hypothecation  and  the  agreement  of  sale  in 
case  of  default  in  keeping  up  the  necessary  margin. 
The  discount  clerk  should  see  that  every  certificate  of 
stock  pledged  is  good  delivery;  that  is,  the  certificate 
must  be  in  the  name  of  a  responsible  broker  or  the 

254 


from%HE"''«"^"  '"^"^y   aeknowiedge   to   have'  reel 


BANK. 


received 


•»•»«»«» 


SLturii,;  and^L  'Sja/iV""""'  "  *^^'"  '"'^V ^"fe??;: 

the^Bl„£^or"to^'^!i?„^;,i^ 

the  following  security;  n"md;/.!'!".f:^"^*':^'~'  ^"  *""*' 


and  convey  the  sS  secSrUv  tn^'^^K^  authorized  to  sell 
time,  whenever  the  Bank  sh^lltlS!!!;*  ***'~'  '""»  ""^^  to 
in  the  payment  otth^^aJ    a    ^^^  Proper,  upon  default 

®®®®    eeeds   tL?Sf    towa^s    ft,    relmh"'  *"^*°  "PP'^  ">«  P'^ 
„  ^^    dice  to  its  claimsunon  Vh    '^•^^^''T'ement,   without    preju- 

II  II  II  II  Should  thel^iTeJurUy  Se"Sr1  '''  f"^  ^'""^''^^y- 

:  ■   ■  .  maturity  of  said  advance    th?n^*.^"J"^"'=  be^°«  the 

:      :  :  to  sell  ^nd  convey  the  same   or  n«"i  ll  ^'/^/  ""thorired 

:   :  :  time,  without  walLg  the  dVof'^SLyment"'*  '""  """  **» 

i  i  i  i  tin!:  Set:tn'?-uVrs^i%VP^  ^^-^  -  -y 

:  i : :  ?S";2^^re!s^Hr  ^T^XSTf^X^-S 

:       ;  made  without  notice  to  the  ..hh'"'''-  ""^  «:«n'eyance  may  be 

:  :  mality  prescribed  by  law  or^th'/'^"*^'. ""  ''"'*  every  ^for- 

•  •   •   :  sale  and  conveyance  ^nglrty'Tafved    ""'*'°"  *°  '•"'^'^ 

■  unt1ii*J3  rtsS?^  t-i-T*^'^  ««"^  a"o-  the 

and  authority  to  dispone  of  and  Sv  T'/'"*  ,^"t  P°^" 
manner  as  the  Banlf  could  t^^Xl  XX^  S^^XlT 

libert?  ;*  r:trn'rnd°:serhe  a^""  *''-.*  "^^  »-''  ^^  at 
substii^uted  sccuri?;)  as  cdrate^rf„T""°"'^l''^»''*3^  (°' 
ness  or  UabUity,  Dresent  ni  %„[  for  any  other  indebted- 
the  Bank.         ^'  *^    ^°*  ^"^  ^"t"""^'  <>'  the  undersigned  to 

for  shares  of  stock,  with  1  Want  fl*'  /°™'  ^^  *  certificate 
torney  in  blank  to  transfer  ft  T^" ''",'' P'''^"  °' at- 
books  of  t),e  Company  endorsed  tLi""  °{  '^"^^  °"  the 
the  Bank  is  hereby  LthSd  thl  "k°'  """'"^^'^  thereto, 
or  employees,  to  flU  "n  aU  hlUtl  "'^''  '"/  *'*'  '*"  "ffi'^e" 
powers  of  attorney  wth  such  nam.i"  '^'^  *™"''"''  "'"' 
as  may  be  thought  beTt  by  the  R«nr  ?»  *"  ''"*^*'  "anner 
the  same  after  -ch  Wants I'vfSn^fl",!*^^'  "'"'  ''^'"" 
Witness  the  hand  and  seal  of  SruS'i'^ed. 


r  ■ 


FiocHE  44. 
•1'VI--Ci8 


Fo.K    rO»    HTPOTHECATINOCoLlL^^a^V 

265 


i  ■  I  '■ 


256 


BANKING  PRACTICE 


indorsement  guaranteed  by  a  broker  whose  signa- 
ture the  bank  knows,  and  should  be  assigned  in  blank 
and  witnessed.    These  requirements  not  only  insure 
the  genuineness  of  the  stock,  but  also  that  claims  for 
dividends  are  made  on  responsible  brokers  by  the 
holders  of  the  stock.    To  make  a  transfer  every  time 
a  certificate  changes  hands  would,  of  course,  be  im- 
possible.   Bonds  should  be  scrutinized  to  see  that 
they  are  payable  to  bearer,  and  all  bonds,  debentures, 
certificates  of  stock  and  similar  certificates  pledged 
as  collateral  for  advances,  or  lodged  for  safe  keeping, 
should  be  kept  in  the  treasury  under  the  joint  custody 
of  the  manager  and  accountant.     All  securities,  as 
soon  as  received,  should  be  recorded  in  the  securities 
register  by  the  number  of  the  certificate  or  bond,  the 
name  of  the  company,  the  number  of  shares,  the  par 
value  of  the  shares  and  the  name  of  the  broker  to 
whom  the  certificate  is  assigned.    It  should  be  the  in- 
variable practice  of  every  bank  to  record  the  above 
particulars   of  any  stock  passing  thru  its  hands, 
whether  received  as  security  or  simply  passing  thru 
the  bank's  books  attached  to  a  draft.     In  case  of  the 
loss  of  the  script  such  information  has  often  proved 
invaluable. 

2.  Loam  to  joint  stock  companies,-- A  joint  stock 
company  has  been  defined  as  an  association  of  indi- 
viduals possessing  corporate  powers,  enabling  them 
to  transact  business  as  a  single  individual.  Such 
companies  may  obtain  incorporation  in  Canada  in 
several  ways : 


CLASSIFICATION  OF  LOANS 


««7 


1.  By  special  act  of  either  the  Parliament  of  Can- 
ada or  the  provincial  legislatures ; 

2.  By  letters  patent  issued  under  the  General  Com- 
panies Acts  of  the  Dominion  of  Canada  or  of  the 
provinces  of  New  Brunswick,  Prince  Edward  Island, 
Quebec,  Ontario  or  Manitoba; 

8.  By  memorandum  of  association  in  the  provinces 
of  Nova  Scotia,  Saskatchewan,  Alberta  and  British 
Columbia. 

As  the  powers  conferred  on  companies  under  these 
several  methods  of  incorporation  vary,  banks,  as  a 
rule,  issue  instructions  to  their  branches  in  the  dif- 
ferent provinces  regarding  loans  to  joint  stock  com- 
panies; special  forms  for  by-laws,  etc.,  are  also  sup- 
plied. 

When  considering  loans  to  companies  incorporated 
by  special  acts,  it  is,  of  course,  necessary  to  refer  to 
the  companies*  charters  in  each  instance. 

In  opening  an  account  with  a  joint  stock  company, 
it  is,  therefore,  necessary  to  ascertain  the  following: 

1.  Has  the  company  power  to  borrow? 

2.  Have  the  directors  authority  to  exercise  that 
power  w'^*hc-\  a  by-law  of  the  shareholders? 

8.  Is  ji^.e  a  specified  limit  to  the  amount  which 
can  be  borrowed,  and  has  that  limit  been  reached? 

4.  Have  the  directors  power  to  secure  the  payment 
of  moneys  borrowed  by  giving  security  under  Sec- 
tions 86-90  of  the  Bank  Act  or  by  mortgage  or  other 
charge  on  all  or  any  part  of  the  assets  of  the  com- 
pany? 


liH 


ssfiLSft'^y*-. 


MICROCOTY   RESOIUTION   TEST  CHART 

(ANSI  and  ISO  TEST  CHART  No.  2) 


1.0 


M 


IM 


asA 

14.0 


■  25 

2.0 
1.8 


^  /APPLIED  IIVMGE    Inc 

^Sr  1653   East   Mcin   Street 

B'.S  Rochester.   New  York        14609       USA 

'.^  (716)   482  -  0300- Phone 

^S  (716)   288  -  5989  -  Fax 


S58 


BANKING  PRACTICE 


This  information  can  be  obtained  from  the  chartei 
and  records  of  the  company  and  from  the  statute 
under  which  the  company  is  incorporated.    These 

Rbboldtiok  pasted  by  the  Board  of  Directors  of  the 

'cailVd/heid'iit''thi'o^'eeof'ihyC^  '^  "  """"^  "^"'^ 

on  the day  of V.V.V.V.V. 


191. 


On  motion  it  was  resolved  that be  and 

• hereby  is  authorized  on  behalf  of  the  Company  to  draw,  accept, 

sign,  make  and  agree  to  pay  all  or  any  Bills  of  Exchange,  Promissory 
Notes,  Checks  and  Orders  for  the  payment  of  money;  also  to  authoriie 

any  Manager  or  other  ofScer  of  thk bakk  to 

accept  aU  or  any  Drafts  or  Bills  of  Exchange  on  behalf  of  the  Com- 
pany; also  to  sign  checks  upon  and  to  borrow  money  from  the 

• BANK  on  behalf  of  the  Company,  either  by  overdraw- 

Uiff  the  account  of  the  Company  with  the  said  Bank  or  otherwise. 

-     Also  that ^^  g„j 

hereby  is  authorired  on  behalf  of  the  Company  to  assign  and  transfer  to 
the  Bank  aU  or  any  Stocks,  Bonds,  Warehouse  Receipts,  Bills  of  Lad- 
oQ*'#*?w»  n  ^  securities,  and  to  give  the  Bank  security  under  Section 
^  of  the  Bank  Act,  and  to  sign  a  written  promise  or  promises  binding 
the  Company  to  give  any  such  securities  as  aforesaid. 

♦1,'^'^'L*'"'^- V-:- OT  any  one  of 

them,  be  and hereby  is,  authorized  on  behalf  of  the  Company  to 

ne^tiate  with,  deposit  with,  or  transfer  to  the  said  Bank  (but  for 
credit  of  the  Company's  account  only)  all  or  any  Bills  of  Exchange, 
Promissory  Notes,  Checks  or  Orders  for  the  payment  of  money  and 
other  negotiable  paper,  and  for  the  said  purpose  to  indorse  the  same 
or  any  of  them  on  behalf  of  the  Company;  also  to  arrange,  settle,  bal- 
ance and  certify  all  books  and  accounts  between  the  Company  and  the 
Bank,  and  to  receive  all  paid  checks  and  vouchers,  and  to  sijm  the 
Bank  s  form  of  settlement  of  balances  and  release. 

CERTIFIED  a  tr«e  copy  of  the  Resolution  passed  as  above  set 
forth  and  recorded  tn  the  Minute  Book  of  the  proceedings  of  the  Board 
of  Directors  of  said  Company. 

Dated  the day  of 191.... 


PBESroiKT 


lECUTAlT 


The  President  and  Secretary  wiU  sign  as  above;  the  other  officers  as 

follows! 

Viee-Prestdent 

Fratru  4ft 


CLASSIFICATION  OF  LOANS  ggg 

questions  being  satisfactorily  answers!   ;t  ;=       . 
My  for  the  director.!  nf  rtl    "^"«<''  '*  «  custom- 

luln  outlini^^^'  ^ow^^Tr'  *°  ?""  "  '^ 
and  specifyingiho  tlf^^to  be  1*^1^  f  "^'»' 
of  this  is  generally  suppliS  to  th.  if  l"'  ""P^ 
similar  to  ttat  in  S  45  ''"^  °°  »  ^°™ 

.nnT"^  '  ^:^''  °*  *•""  shareholders  is  necessary  to 
confer  borrowinir  powers  on  th.  j-    \    "'''^ssoiy  to 

dir^to.-  resolution  aC  :if;iTto""'"'  "^  ^'^ 
ex^d  b^  r^"  t*""  *'  ?'~"^  «"•*  «^  should  be 

undertaking,  and  a„tf  "^"7  .^  '^  '*  ^"^  »>«  own 
and  the  refusal  on  ftep^  ^ll7""J **"'  "  '"""''■ 

r«o?-?t^^^-T^^^^^^^^ 


1 1 

Hi 


It 

t 


I.  !  ? 


860  BANKING  PRACTICE 

BY-LAW  of  th» 


•J^  Ekacwd  OS  a  Bf-law  of  the  Company  as  follows  t 

The   Directors  may   borrow  money   on  the   credit  of  the   Compani 

from  tmie  to  time  and  in  such  amounts  as  they  may  think  proper 

wid  may   liypothecate,  mortgage  or  pledge  the  personal  property  oi 

gJ^^Pany  to  secure  any  sum  or  sums  borrowed  for  tte  purposes 

-  7i5f  .f~'"?^|P*'r.?'  ^°^^^  '™™  **"e  *o  time  heretofore  under  th< 
authority  of  the  Directors  from  the baki 

^IS  the  giving  of  securities  therefor  under  Section'ss'of'toe'Bank 

Act  or  otherwise  are  hereby  ratified  and  confirmed. 

In  witness  whebeof  the  corporate  seal  of  the  Company  hu 
Deer  hereto  affixed,  and  this  By-law  duly  countersisned  the 
day  of 191.... 


L.  S. 


PUnCDKNT 


«.--  A  ^°*"f,  merttog  of  tte  shareholders  of  the  above-named  Com- 
pany duly   called   for  considering  the   foregoing   By-law.   which   wai 

passed  by  the  Directors  on  the. .? !day  of . . ...*  . 

191 ,  and  held  on  the day  of  iVi 

the  same  was  duly  sanctioned  and  confirmed  by  a  TOte  of  *  iot' less  thiiii 

two-thirds  in  value  of  the 

(1)  subscribed  stock  represented 

(»)  shareholders  present  in  person  or  by  proxy' 


.at   such   meeting. 


CBAIBlfAX  OF  THB   KBBTIKa 


FiotTBx  46 


8BG1CTABT 


8.  Loans  to  municipaUties.~The  conditions  gov- 
eming  loans  to  municipalities,  school  districts  and 
other  public  bodies  differ  in  the  various  provinces 
and  also  in  the  case  of  cities  incorporated  under  spe- 
cial charter.  As  the  laws  are  frequently  changing 
no  general  procedure  can  be  formulated.  The  head 
office  of  each  bank  generally  issues  specific  instruc- 


CIJlSSIFICATION  OF  LOANS  fgi 

hZ*T^   fr™'    "«"^«   *"=«    '<»°»    to    their 
branches  in  the  several  provinces. 

0^"%'^"^^^'  """i'^iP-'Iities,  on  resolution  of 

assessment.     These  borrowings  must  usually  be  re- 
'^Jy*?f*««»'"  they  are  paid  in.     ThekamaJe 
<md  should  be,  short  in  term.    When.  how^T  Z' 

Lke'p^Se?  Tt?  r*'"  *"  ••'^ncel^hol 
be  kept  distinct.  Such  loans,  when  supported  bv 
authentic  copies  of  the  resolution  of  the  c^S  lay 
be  co^idered  legitimate  banking  undertak^'  ' 
Frequently  a  municipality  is  authorized  by  a  bv- 
W,  voted  on  by  its  ratepayers,  to  borrow  money  for 

«na  the  like.  It  ,s  advances  of  this  description  which 
Zr  A^'  ""Jr*'"-"'*  features  ofmiL^S 
accounts.  As  a  rule,  mmiicipalities  postpone  any 
definite  arrangement  as  to  the  disposition  of  ?hrboZ 
until  the  construction,  for  which  the  i.aue  is  aiSho^ 

1  J^'ln  .h  'T  T'"?'^*"''-  ^"  ^^  "^''nt^e,  they 
look  to  their  barks  for  advances  trom  time  to  time 
un  1  he  work  is  fuUy  accomplished.  Thi  f:ato: 
m  rtself  s  no*  "bjectionable  if  the  mmiicipality  tak^s 
mmiediate  steps  to  dispose  of  its  bonds  on    he  elm 

r '  fLT 'i    ^"^"'-''*«'^  this  istlZ 
amont^eir  rr      «"™"'«<^»  """^times  number 

Who  not  only  have  exalted  ideas  of  the  market  value 
of  the  bonds  m  q,uestion.  but  also  overestimate  thei^ 


'It: 


K 


i:    - 


I 


ii 


f 


h\ 


..k.^i: 


262 


BANKING  PRACTICE 


m 


own  abaity  in  judging  maiket  conditions.  The  re 
suit  is  that  the  time  in  their  opinion  is  rarely  oppor 
tune  for  making  a  sale  of  the  bonds,  and  the  ban! 
js  confronted  with  v-  necessity  of  continuing  to  Ci^rrj 
an  unsatisfactory  loan  or  enforcing  a  sale  of  the  bonds 
both  undesirable  alternatives.  The  proper  method 
to  follow  in  making  such  advances  is  to  see  that,  ai 
the  inception  of  the  loan,  a  definite  arrangement  is 
made  as  to  the  disposition  of  the  bonds,  irrespective 
of  market  or  other  conditions. 

4.  Loans  to  professional  m^n.—Loans  to  profes- 
sional or  salaried  men  cannot  be  considered  desirable 
from  a  banking  point  of  view,  or  from  any  point  of 
view  for  that  matter.    Even  where  the  apphcant  is 
possessed  of  private  means,  a  loan  of  this  nature  is 
more  or  less  objectionable  according  to  its  object  and 
the  understanding  as  to  final  payment.    The  money 
may  be  locked  up  in  some  undesirable  venture,  and 
tho  sure  of  ultimate  payment  the  bank  is  confronted 
with  the  alternative  of  carrying  a  dead  loan  or,  by 
enforcing  payment,  making  an  enemy  of  a  desu-able 
citizen. 

Loans  to  men  who  depend  entirely  on  their  salaries 
and  professional  earnings  should  not  be  considered 
except  in  very  exceptional  cases.  If  a  man  cannot 
hve  on  his  salary  he  cannot  hope  to  pay  off  an  indebt- 
edness in  addition.  The  loan  is  either  intended  to 
discharge  another  indebtedness  or  to  purchase  some- 
thing which  cannot  be  paid  for  out  of  future  salary. 
Credit  is  a  good  servant  and  a  bad  master,  and  many 


CLASSIFICATION  OF  LOANS 


868 

bors.  to  purchase  automobne  ^nd  T       ^^  "'''«"• 
in  «  style  beyond  their  means!"         ^'""""^  *°  "'« 

Retail  merchants  frequently  off«>  ti.  •     i 
for  disco^t,  and  the  0^^^  hL"       "'""P'' 
pronounced.    If  a  n.«n  ^      T  '  "  ^™"  "0" 

of  life  for  his  fL^iwl  '^°*  P"^  ^°'  *•■«  ""^^^ties 

his  being  ab;:  t':^  J  :s;:,r """  "'^^'*"-'  ^^ 

every  consideration  should^  It'  *"''  *°  "^om 
to  people  entirelv  rf!„    J  ^  '*°'^  """t "  does  refer 

revived  ,^":tSri^"L"T  ""!?"'"'  ^'"«-> 
necessary.  "«"•«"'?  which  renders  credit  un- 

f«^i"ri':r:j:H7Tr;rr  t  --f --  -^ 

farmer  is  more  or  LJ  ■       ^^^'  <="**  for  a 

forabank.  In  the  Sth  ^'^"«  ."""-ess 
vails,  the  fanner  is  not  Anl     ■  fa™mg  pre- 

wthperhapsTsLL  K  ?^  '"  ^^  "'cumstaiuses, 
out  on  n,ort^rbTh:t "'"""*  "'  """^^  '<"»«"1 
income  thruorttteyelL^'.."  "T  °'  '^^^  ^^^a" 
'» the  neighboril  JZ,l     r     "  ""*  °'  ^•™  P^luce 


S64 


BANKING  PRACTICE 


year,  and  it  is  necessary  for  him  to  have  credit  whil( 
he  is  preparing  for  the  crop,  as  he  has  to  wait  until  th( 
fall  before  receiving  any  return  for  his  year's  work 
Seed  must  be  bought,  labor  paid  for  and,  while  the 
crop  is  growing,  the  farmer  must  live.  Few  farmers 
can  cultivate  their  farms  without  some  credit  eithei 
from  a  bank  or  store,  and  if  no  credit  were  extended 
they  could  neither  purchase  nor  produce  anything. 

Credit  to  a  farmer,  no  matter  what  his  moral  or 
financial  standing,  is  relative  and  should  not  exceed 
a  year's  supplies  at  any  time.     The  loan  should  be 
cleaned  up  regularly  after  harvest,  unless  arrange- 
ments were  made  by  way  of  advances  under  Section 
88  of  the  Bank  Act.    The  size  of  the  farm  and  the 
amount  of  land  under  crop  should  also  be  carefully 
considered,  for  some  farmers  are  too  ambitious  and  try 
to  farm  too  much  land.    The  tenure  of  the  land,  the 
amount  of  mortgage,  and  other  indebtedness,  espe- 
ciaUy  for  machinery,  are  all  important  features  in 
considering  advances  to  this  class.    As  a  ryle,  the 
farmer  should  not  need  to  borrow  from  the  bank 
until  seed-time  to  pay  for  seed,  labor  and  the  like. 
If  his  crop  is  successful,  he  should  be  clear  of  his 
indebtedness  before  the  end  of  the  year,  and  have  s 
good  surplus  to  pay  on  his  mortgage  or  to  place  in  the 
bank. 

A  clause  in  Section  88  of  the  Bank  Act  of  1913 
permits  c  bank  to  lend  money  to  a  farmer  "on  the 
security  of  his  threshed  giain  grown  upo*i  the  farm." 
The  addition  of  this  clause  was  due  to  the  fact  that 


CLASSIFICATION  OF  LOANS 


205 
the  grain  grown  by  a  farmer  in  fh^  w    *. 
pected  to  clean  ud  his  inThI  ^         ^^'*  "^^^  ^^- 
orshortJyafterwafd     Thf^    1^^^^  ^*  ^^^^^*  *^« 

erop  on  the  ST^a  X^^^^         *'*'"^"  '^^ 
having  an  opportunitv  f  •      ^""^^'^  ^**^*d  o^ 

The  v!  W  oTslrlrlnt  S'^^  T^*^^'^^- 
prices  and  adds  to  th^     /  ■      ™'  *""*  depresses 

offer  the  sfeuwjt  Xle'S  "Ld'  rt"  *° 

make  vlrv  muchnfff  *  ^"""'"y'  '*  P""'"?  ^i"  "ot 
«s  he  wSllfl^Z  '^  *°  *«  responsible  farmer, 
any  Jr  a1  t^^S^T'^  """'^  ""  his  own  note  in 

^i^que^o^^^VS^at'^'"^"""*  '*""" 

i^  -tro,  .i«  in,;s- ^:^a:^™;cr^""''" 

!  vances  on  their  own  n^    T  !^  1°  ""^"""^  «<1- 
wnsiderable  credftfrZ  k.     f "''f P^^  who  takes 

Je  aM   t    Obtain  yrert^.tSat'^tf""}^ 

«SLdn":t\^tt:L*°„rLt^^^ 

■ner'hant  Ts  a" t^J^  f/J^;  ^J''^  *«  wholesale 

to  fall  back  on  in  caSltHs      If  theT  '^'  "'f  * 

for  the  Durnnw  ^f         •  .  "^  '°*"  '«  sought 

purpose  of  paymg  eash  for  goods  purchased. 


i 


«66 


BANKING  PRACTICE 


ih'ti 


it  should  be  borne  in  mind  that  the  usual  disco: 
granted  by  the  seller  for  cash  is  12  per  cent  per  annu.. 
or  more,  that  being,  in  effect,  his  estimate  of  the  degree 
of  risk,  while  for  precisely  the  same  risk  the  bank  is 
asked  to  be  satisfied  with  seven  per  cent  or  even  less. 
The  mere  transfer  of  an  obligation  from  the  mercan- 
tile creditor  to  a  uank  does  not  diminish  by  one-half 
th  monetary  risk  of  the  accommodation;  it  is  illogi- 
cal and  irrational  to  as^  ame  such  risks  for  an  ordinary 
banking  rate  of  discoimt. 

Loans  to  retailers  "re  dangerous  both  to  the  bank 
and  to  the  boriower ;  to  the  bank  on  account  of  the 
risk,  and  to  the  borrower  because  it  frequently  leads 
to  lax  methods  of  collecting. 

7.  Loans  to  manufacturers  and  merchants — Natu- 
rally the  bulk  of  the  loai^s  of  a  commercial  bank  con- 
sists of  advances  to  manufacturers  and  wholesale  mer- 
chants. Both  classes  are  considered  highly  desirable 
customers.  They  are  at  times  heavy  borrowers  from 
banks,  and  a  consideration  of  their  relative  merits  in 
that  connection  is  of  interest.  Mr.  George  Hague, 
in  his  "Banking  and  Commerce,"  has  expressed  him- 
self so  clearly  on  the  subject  that  he  is  well  worth 
quoting: 

There  is  this  fundamental  difference  between  the  whole- 
sale merchant  and  the  manufacturer;  the  merchant,  if 
hie  credit  is  good  enough,  can  put  the  whole  of  his  stock 
upon  his  shelves  without  the  expenditure  of  a  single  dollar 
except  for  freight  and  duties.  Good  credit  will  enable  his 
to  obtain  all  he  wants  from  manufacturers  on  this  side  of 
the  Atlantic,  or  from  wholesale  houses  in  England.     But  i 


CLASSIFICi^TION  OF  LOANS 


S67 

n  nearlj  ever^  brand  "of„rn*l^ui  Z"  """^Z  '°'  "'^• 
/or  his  raw  material  and  his  ful      inH  tK      "'*  P*^  *^"^ 
gins  the  manufacturing  process   hJ.t      **»f,  "'oment  he  be- 
fronts  him   week  by  v  K  Tr!         F^u^'""       °'  ""^^^^  ^°"- 
be  no  possibility  of  Lk  n^  ".^^1    ^  •"'*•     '^^^^^  ^^'^n 
week  could  wages  be  Jeft  1^'^      r"'*',  "°*  '°'-  *  ""«!« 
lines  of  manufaftlrwWeZei;    ^"  '^'  '•'''  °^  «P^^^1 
of  cost,  tJie  necessity  of  meetW  Z  T  """''  ^'''P°'*'*"*  ^^^"^ 
the  most  harassin/of  an&lV^^eTur^^^^^  Tf^  " 
indeed,  more  heavily  than  the  necessUv  of  Z-f      P""^'' 
ances  and  promissory  notes    fZ  fu^        meeting  accept- 
be  approached  for  renewal   at  1  n'     k  ^Y-V'  °^  **^^»«  ^«> 
body  of  workmen  toT^er  pavme^'of'  "^^'^  ^  '^"^^*  *«  * 
possible.     And  as  navmlnf  ^  ''^  °^  "^"S^'  "  ""«rly  im-. 

will  naturailj.  in  s^uch  cTrcumr^^^^T'  *^^  manufacturer 
banker.  ^  ^  circumstances,  have  recourse  to  his 

-SS:JltiZ\Tt^L'''-  '"*"r  '°^  *  --ufacturing 
The  latter,  having  the  powerThu"'  *  "^^"'^^^  "'"^^^t 
crdit,  has  no  rLonabTeTroundJor^rt-  '*  '"  *r«  «" 
nances  from  his  banker  Mf-  "i  r  ^''''°«f  '"^^^^^  ad- 
as  a  rule,  to  the  discount  ?'^,f  ^^^^^  J^ouW  be  confined, 
TiK-"  only  payments  a  whc^Il^'^'"  ^/  ^'^  customers. 
,  which  are  abs^olut  ly  Lperath  ^u'^"""'  ^^'  *°  ™«J^^' 

freight  en  imported  gZds  it  ;^"-  *^  '".«*°'"«  duties  and 
credit  heie  as  it  woufd  be  for  th  ''"'*  '»\™Po«"We  to  ask 
no  wholes  ile  mere W         u?    ^'^  Payment  of  wages.     But 

i^gbusine:;^"h:^caS?  2dT''  ^'?'  of  fommenc- 
necessary  would  be  an  amount  nffl'  T?  ^°^''*  "'^"™""' 
on  the  stock  requisite  to  1"  u'^"*  ^'^  P*^^  **^e  duties 

on  his  averag^Xk  "°'""'^»^«  business,  and  thereafter 

UZtu:^  ?id&^r„f ''"^^'  ^^  -"  b^^-"  to  sell, 
hr  the  cashing  of  cu  tomers'  b^^^^^^  '''■'  "7  ''"''^•^  *°  ««'''' 

financial  point  of  vTew   be  'i^        ^  ""'t!^'  "''^'  ^'""^  * 

I  r         oi  view,  be  said  to  be  able  to  sell  for  cash. 


KY¥  W9.-r%  t  ' 


268 


BANKING  PRACTICE 


Thus,  by  the  time  the  payments  for  his  stock  become  due 
the  proceeds  of  his  sales  ought  to  be  sufficient  to  meet  them 

From  all  which  the  rule  may  be  deduced  that  loans  to  i 
wholesale  merchant  (as  distinguished  from  the  discount  o 
trade  bills)  should  be  considered  as  irregular  in  the  natur 
of  things,  and  only  to  be  granted  in  exceptional  circum 
stances. 

But  the  whole  system  of  loans  to  wholesale  merchants  ii 
exceptional,  and  requires  exceptional  treatment  at  the  hand: 
of  a  banker. 

The  character  of  that  treatment  may  be  indicated  ai 
follows : 

First,  no  regular  line  of  credit  should  be  arranged  for  ic 
respect  of  loans;  that  is,  no  amount  which  a  customer  can 
always  have  at  his  command.  Second,  advances  should  be 
temporary,  each  being  applied  for  on  its  own  merits,  witli 
the  explanation  of  circumstances.  Third,  they  should  onlj 
be  allowed  at  certain  seasons,  and  aever  last  more  than  two 
or  three  months  at  the  most.  Fourth,  renewals  should  not 
be  granted.  Indications  of  continuance  should  be  care 
fully  watched  and  promptly  dealt  with.  If  advances  be- 
come chronic,  security  should  be  insisted  upon.  Fifth,  it  is 
always  desirable,  too,  that  when  such  advances  are  granted 
to  a  firm,  the  indorsement  or  guaranty  '  each  individual 
in  it  should  be  obtained;  for  individual  partners  may  hare 
separate  estates  which  the  indorsement  would  bind.  If  thf 
business  is  carried  on  by  a  joint-stock  company,  the  guar- 
anty of  some  of  the  principal  stockholders  would  be  desir- 
able. 

8.  Collateral  notes. — There  are  several  reasons  why 
it  is  preferable  sometimes  to  make  advances  against 
notes  as  collateral  instead  of  discounting  them.  The 
borrower  may  need,  perhaps,  only  part  of  the  face 
value  of  the  notes,  and  that  only  for  a  short  time 
The  quality  of  the  paper  may  not  warrant  an  advance 


CLASSIFICATION  OF  LOANS 


tee 

of  more  than  B  certain  percenta«    „  th.      . 
be  of  a  longer  currency  J"  tiTe'elf  '  T'' 

l«yond  which  time  a  hank  u  l^tt  T  "'  '"°""'»' 
vance.  It,  assets  must  b^  ke„M  .1^  """^^  '"  «'■ 
"P  in  long  time  Cs  ^  '"'""'  """^  "•"  '~'«=d 

«.unt;  a  large  nominal  mrV^ma''  ^"if  ""  <«»■ 
by  no  means  an  adequate  sen^L  s  '*.•'"'"»"'*  ""^ 
be  scrutinized  as  criti^,^Iv  h'^'  ^"='' ""*"  should 
jected  if  defective^  :5v«;,'~??  ■""»•  -"  - 
by  .gneultural  m,plement  je  C J^T" °''*"' 
cumbered  with  conditions  wWc^  rTnder  tb/""  ™" 
transferable,  they  should  be  refused      r;  .  "°"' 

notes  secured  bv  li^n  „„  •      ,'"*''•    ^^'en  notes,  or 

other  movaMe  eU'lent  Tow'"'r'^'"'''''™'y  «"<> 
for  .. lection,  as' iSt^tt"  i  "S  ^b  f" 
maker  has  the  right  of  set  nff  f„-         ,  "'**     * 

.gainst  the  vend^  andl^M  n  T  '^'*'""'*'  '■*'-' 
P^^..edforsomer^:5"l^«^:--''.Wsbe 

XoXrtt'rr = ::  rr  r '-  '-^ 

regularity,  and  in  ac^rd  with  L  ™'"  '"^ 

the  Bills  of  ExchanffeTc^  i*  •*'"  "^""•ements  of 
«  bank  could  nrnKu  ^'  "  ""'  »"®"«nt  that 

proving^  caL7S  s::r:,  n^  T^!""^  "^ 

Ss-:-"^~-srw:^^^^^ 


Hn^ 


870 


BANKING  PRACTICE 


borrower  (Figure  47  or  28).  The  fonn  Figure  V, 
can  also  be  used  to  pledge  stocks  and  other  securities 
permissible  under  the  Bank  Act.  The  attorney  foi 
a  customer  cannot  hypothecate  collateral  notes  unless 
specially  empowered  to  do  so.  All  collateral  hypothe- 
cations should  be  consecutively  numbered  as  received 
from  the  customers,  and  filed  in  proper  order  in  the 
vault. 

The  full  margin  of  good  collateral  stipulated  as  the 
basis  for  any  credit  must  always  be  maintained.  A 
liberal  margin  will  generally  be  found  to  be  insuffi- 
cient in  case  of  trouble.  The  margin  agreed  upon  in 
all  cases  should  be  calculated  on  the  amount  of  collat- 
eral offered,  and  not  based  on  the  amount  of  the 
advance.  For  instance,  on  a  margin  of  25  per  cent, 
advance  $75  on  each  $100  worth  of  collateral  depos- 
ited. Do  not  base  the  margin  on  25  per  cent  of  the 
advance,  which  in  the  above  would  only  give  $93.75 
collateral  for  every  $75  advanced. 

Overdue  paper  should  not  be  accepted  as  collateral 

In  the  case  of  wholesale  accounts  obtaining  ad- 
vances against  trade  paper  deposited  as  collateral,  it 
will  be  necessary  to  follow  the  account  as  closely  as 
if  the  paper  were  discounted.  For  this  purpose  the 
blue  book  used  in  the  discount  department  should  be 
used  (see  Figure  25),  and  an  account  opened  up  for 
each  obligant. 

In  all  cases  of  advances  against  this  class  of  security 
it  is  necessary  to  see  that  drafts  and  notes  which  are 
returned  unaccepted  or  unpaid  are  settled  for,  eventu- 


XVI-C19 


I 


SsSg 


*^   ■*•*  -.5  S 


9  * 


*  •  S  S  S 


I  2  I 


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J  «^T3 


S.5 


g':gs".2Sg 

W_  O  01  «  Am  <9  O) 

s 


as 


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I 


SBst 


:^  2^3*  fell 


■"■»•  H  *  3  "  » 


_  g  8  fl  •■5  a 
:»|||g.sg 

flsl  Is 


S7« 


BANKING  PRACTICE 


I ''' 


^1 » i 


ally,  by  the  maker  or  drawee.  The  wholesale  su 
rendering  of  these  returned  items  to  the  pledger 
exchange  for  fresh  collateral  drafts  should  not  be  pe 
mitted.  Under  no  circumstances  should  unaccept( 
drafts  which  are  lodged  as  coUateral  be  held  withoi 
presentation  at  the  request  of  the  pledger,  or  for  an 
other  reason. 

9.  Accommodation  paper. — Acconmiodation  pap( 
is  most  dangerous  when,  as  is  generally  the  case,  it 
carefully  concealed.  A  proof  of  a  banker's  sagacit 
will  be  best  seen  in  his  detection  of  the  acconmiodi 
tion  taint  wherever  it  may  exist,  however  dexterous! 
covered  up,  and  in  keeping  clear  of  it  and  of  the  othe 
dangerous  complications  and  contingencies  insepara 
ble  from  it. 

Accommodation  paper  disguised  as  trade  bill 
should  be  looked  for  and  regarded  with  the  same  dis 
crimination  applied  in  separating  spurious  coin  fron 
genuine.  Such  paper  should  be  detected  if  a  man 
ager  is  observant  of  the  working  of  his  accounts. 

The  most  ordinary  kinds  of  accommodation  paper, 
according  to  an  old  rule  book,  are  the  following: 

(a)  Paper  floated  by  the  borrower  with  the  names 
of  his  friends  for  the  general  purposes  of  his  business, 
say,  a  drygoods,  grocery  or  hardware  business,  or  a 
manufacturing  business  of  any  kind. 

(b)  Paper  floated  by  the  parties  to  it  for  the  pu^ 
pose  of  going  into  some  speculation  outside  of  their 
legitimate  business.  They  are  induced  to  buy  or 
build  a  ship,  a  saw  mill  or  factory  of  some  kind,  i 


CLASSIFICATION  OF  LOANS 


X7S 
fa™,  a  mine,  timber  lands,  or  a  score  of  other  enter- 

represented  ZTZi  uluhfte    ''^  °"^'"^ 
paper  mav  still  ™  «  i  T  ^^  Promissor,  the 

paper  may  stiJl,  m  a  sense,  be  held  to  be  leeitimate 
alUjo   even  m  that  case,  the  renewal  is  a  mcT^: 

tading.    But  ,n  the  case  of  most  renewals  they  have 
Ut  aUcom.ect.on  with  the  goods  they  originaUy  r^p 
resented,  the  proceeds  of  which  sho  Jd  l^Z.7Z 

ceeds  of  goods  have  been  used  for  something  else 
and  the  notes  remain,  representing  nothim,  ^htT' 
•ccamnodation  of  the  worst  kind  ^'         "  " 

wh7h«?  "  °°  "ore  significant  indication  to  a  banker 
who  has  eyes  open  than  renewed  naner     T„  ».,  ! 

favorahlp  Ii,.l,t  ™  ^uc^cu  paper.    In  the  most 

layorable  hght  you  can  take  it  shows  miscalculation 
But  m  most  cases  it  means  something  much  wo«^ 
the  begmn.ng  of  the  end.  worse— 


^ 


«74 


BANKING  PRACTICE 


liii 


mm 


an  accommodation  endorsement  you  see  perhaps  less 
than  one-half  of  the  paper  afloat  bearing  the  same 
names.  The  obligant  calls  for  a  quid  pro  quo,  the 
accommodation  becomes  reciprocal  and,  likelv 
enough,  develops  into  a  network  of  cross  indorse- 
ments. 

10.  Overdrafts. — The  strong  objection  which  all 
banks  have  to  making  advances  by  way  of  overdrafts 
is  b^:ed  on  sound  principles,  which  are  not  generallv 
understood  fully  or  appreciated.  The  principal  rea- 
sons why  this  form  of  advance  is  not  desirable  are  as 
follows : 

(a)  That  it  does  not  fix  the  customer's  liability  as 
indisputably  as  a  note  does ; 

(b)  That  it  leaves  the  date  of  repajrment  uncer- 
tain and  thereby  tends  to  encourage  laxity  on  the  part 
of  the  borrower; 

(c)  That  the  maintenance  of  an  active  account  in 
the  current  account  ledger  involves  an  actual  out-of- 
pocket  cost  in  the  matter  of  stationery  and  clerical 
work,  and  it  is  important  that  the  average  free  balance 
in  such  accounts  should  be  sufficient  to  afford  the  bank 
a  proper  remuneration.  Accounts  in  which  the  bal- 
ance is  frequently  reduced  to  zero  or  converted  into 
an  overdraft  are  not  of  any  direct  value  to  a  bank.  It 
is  further  to  be  borne  in  mind  that  accounts  which 
from  time  to  time  are  overdrawn  are  a  further  ex- 
pense, thru  the  waste  of  the  time  of  the  managers  and 
ledger-keepers,  whenever  proper  authorization  has  to 
be  obtained  for  payment  of  a  check  creating  or  in- 


CLASSIFICATION  OF  LOANS  £75 

creasing  an  overdraft,  as  aU  such  checks  have  to  be 
referred  to  the  manager. 

(d)  No  customer  has  the  right  to  issue  an  order 
upon  a  bank  to  pay  money  which  he  has  not  at  his 
credit.  The  least  he  can  say  is  that  he  wishes  to 
borrow  so  much,  for  such  a  time,  so  that  the  manager 
may  decide  whether  the  money  will  be  lent  or  not; 
otherwise  an  attempt  is  made  to  borrow  the  bank's 
money  without  its  consent. 

The  practice  of  issuing  a  check  without  having  any 
account  is  a  criminal  offense,  and  many  business  .nen 
are  m  favor  of  placing  a  check  for  which  there  are  not 
sufficient  funds  in  the  same  category.  In  some  towns 
the  banks  make  a  practice  of  adding  10  or  15  cents 
to  each  check  returned  dishonored  from  the  clearing 
house  before  charging  it  to  the  indorser's  account. 
This  charge  has  been  found  to  have  a  deterrent  effect 
on  the  practice,  and  has  therefore  met  with  the  ap- 
proval of  the  merchants. 

An  overdraft  in  a  savings  account  is,  of  course,  ab- 
surd and  under  no  circumstances  should  be  allowed. 

REVIEW 
W"*  °""**°  *'"'*'  ^^""^^  ^  'PP^^*^  *°  ^^'^  ''^'^""ty  ^or  call 

.8^UateriV,°";?'"S  P''!^^""^  *«»  ^'^^^  ""Ivances  against  notes 
as  collateral  rather  than  to  discount  them? 

What  IS  the  maximum  term  of  credit  to  a  farmer?     Why? 

What  are  the  ordinary  kinds  of  accommodation  paper? 

Why  ,s  an  advance  in  the  form  of  an  overdraft  undesirable? 


^2  % 


'*' 


■tgatsstkt 


:^!tHlacl 


CHAPTER  VIII 

ADVANCES  ON  WAREHOUSE  RECEIPTS  AND 
ASSIGNMENTS 

1.  Sections  86  and  88. — Before  studying  the  spe- 
cial conditions  governing  a  bank's  advances  on  the 
security  of  merchandise,  etc.,  it  is  necessary  to  grasp 
thoroly  the  difference  between  security  afforded  by 
warehouse  receipts  linder  Section  86  and  the  security 
on  a  loan  given  under  Section  88  of  the  Bank  Act. 
The  main  difference  is  one  of  the  possession  of  the 
gocds,  namely,  constructive  and  actual  possession  of 
the  security,  respectively. 

Advances  on  a  warehouse  receipt  or  bill  of  lading 
can  be  made  to  any  person,  and  the  continued  exist- 
ence of  the  security  depends  upon  the  reliability  of  an 
independent  party,  the  warehouseman  or  carrier,  pro- 
duction and  surrender  of  the  warehouse  receipt  being 
necessary  to  oblain  the  goods.  Loans  c^  this  kind  are 
reasonably  safe,  and  the  conditions  governing  them 
are  very  simple. 

In  the  case  of  advances  made  under  Section  88, 
however,  the  conditions  are  much  more  complicated, 
as  advances  under  this  section  can  only  be  made  to 
manufacturers  and  wholesalers  dealing  in  certain 
classes  of  goods,  the  continued  existence  of  the  se* 

276 


ADVANCES  ON  ASSIGNMENTS  277 

curi^  depending  entirely  upon  the  probity  and  the 
abihty  of  the  pledger,  who  retains  possession  and  con- 
trol  of  the  goods  himself.     Consequently,  a  bank 
never  lends  money  under  Section  88  unless  it  is  abso- 
lutely certain  of  the  honesty  and  experience  of  the 
customer.    Even  then,  loans  of  this  class  are  not  very 
decirable,  owmg  to  the  technical  detail  and  work  in- 
volved  in  their  operation.     There  is  always  a  latent 
risk.    Men  who  have  had  no  previous  experience  in 
this  kind  of  business,  no  matter  how  competent  in 
other  hnes,  are  not  good  credit  risks  for  this  kind  of 
loan.    They  should  furnish  good  indorsements  or 
other  security  m  addition,  until  they  have  shown  by 
achial  expenence  that  their  operations  are  successful. 
Sections  86-90,  which  give  the  bank  special  privi- 
eges  to  take  such  security,  are  based  on  the  principle 
that  the  security  must  be  taken  and  bear  the  same 
date  as  the  advances,  for  which  it  is  taken,  thus  insur- 
ing  that  the  assets  of  the  borrower  wiU  be  increased 
concmrently,  and  therefore  the  ar  r  wiU  not  in  any 
way  operate  to  the  injustice  of  any  creditor.     Conse- 
quently, if  there  is  any  discrepancy  between  the  date 
of  the  advances  and  the  date  of  the  taking  of  the  se- 
curity, the  legality  of  the  latter  is  voided  unless,  prior 
0  the  advance,  the  bank  holds  a  written  promise  that 
the  security  would  be  given. 

It  must  always  be  borne  in  mind  that  banks  alone 
are  permitted  to  take  this  kind  of  security.  For  that 
reason,  It  ,s  necessarj-  when  making  advances  to  fol- 
iow  strictly  the  letter  as  weU  as  the  spirit  of  the  law. 


S78 


BANKING  PRACTICE 


Otherwise  the  courts,  if  called  upon  to  adjudicat 
would  no  doubt  render  judgment  against  a  ban) 
The  whole  of  this  system  is  more  or  less  a  novelty  i 
business  practice,  and  in  some  respects  may  act  cor 
trary  to  established  business  customs.  The  fact,  how 
ever,  that  there  have  been  so  few  lawsuits  arising  on 
of  such  transactions  goes  to  snow  that  the  systei 
works  well  in  practice,  and  that  no  interests  have  suf 
fered,  notwithstanding  the  enormous  volume  of  busi 
ness  transacted.  The  conditions  governing  th 
classes  of  loans  under  Section  88  are  varied  and  mon 
or  less  technical,  and  the  following  brief  descriptioi 
is  intended  only  as  a  general,  rather  than  a  specific 
explanation  of  some  of  the  more  important  features 
2.  Section  88, — Under  this  section  banks  are  per 
mitted  to  make  advances: 

To  any  wholetale  purchaser  or  shipper  of  or  dealer  in 
products  of  agriculture,  the  forest,  quarry  and  mine,  or  the 
sea,  lakes  and  rivers,  or  to  any  wholesale  purchaser  or  ship- 
per of  or  dealer  in  live  stock  or  dead  stock  or  the  products 
thereof  upon  the  security  of  the  same. 

To  a  farmer  upon  the  security  of  his  threshed  grain 
grown  upon  the  farm. 

To  any  wholesale  manufacturer  of  goods  upon  the  se- 
curity  of  the  goods  actually  manufactured  by  him  or  pro- 
cured for  such  manufacture  (a  bank  may  not,  however, 
lend  to  a  manufacturer  upon  the  security  of  any  goods  pro- 
cured by  him  to  be  sold  in  substantially  the  same  conditio- 
in  which  they  were  received).  No  definition  of  the  tevm 
"wholesale"  manufacturer,  purchaser,  shipper  or  dealei  i» 
given  in  the  Act — ^in  fact,  it  would  not  be  possible  to  define 
the  term — but  no  difficulty,  probably,  will  arise  in  the  ma- 
jority of  cases,  as  the  dividing  line  is  generally  well  defined 


ADVANCES  ON  ASSIGNMENTS  ^9 

ful.    Only  o™™  C""'"?""«'""^'"''«help. 
(Schedule  Ci   1.    •        •     .     «-"«nnient   or  pledire 

.ct,  .„d  vary  Tul  7,^7"^  2''''"''''''^  °'  'he 

Among  the  more  iLoSlL"  *"''  *'^"»*  I^"""- 
1    Th      ;™,P'""^°'™s  may  be  mentioned. 

8.  ProffliV._When  advances  are  made  to  f,.r 
fain  bu'linei  •[  LlV  ol'^hrtlT^'ji^  1^^'  •" 

"^  of  the  SitrT"" '"  r"'  p"t  --y  fe 

'»  give  security  (S;  it  r?ir"^"  P™'"'''^ 
tained  before  anv.T  ""'*'  *"«fore,  be  ob- 

.»gnn.enrofZdf7hrid'rt'*'1  ''^'^^  » 

any  property  cLttut^th^  ,t*:;,!;f  ^  '!*"/' 
scribed  or  loeatpH     T      Sj-."    *^™"*y  ^n  be  de- 

Kciieraiiy  obtains  an  iindertaJcincr  fr-^r^  *u 

tomer    Figure  50)   reffardiZ  Vh    ^  *''^  ^"'■ 

e  ";   regarding  the  insurance  of  the 


f80 


BANKING  PRACTICE 


goods  in  question,  and  an  agreement  as  to  the  sale  c 
the  goods  in  case  of  default  in  payment,  etc.  Fui 
theimore,  each  note  form  refers  to  the  general  pron 
ise  and  supplements  it  (Figure  52).  Casual  loar 
are  made  on  another  form  of  note  (Figure  58),  tli 
promise  being  original  and  therefore  calling  for  pai 
ticulars  of  goods  and  location. 

It  must  always  be  borne  in  mind  that  the  "pron 
ise'*  is  not  in  itself  security ;  it  is  simply  a  contract  t 
give  security,  and  can  only  be  enforced  as  a  contract 
in  other  words,  it  is  an  equitable  assignment,  in  cot 
tradistinction  to  ihe  pledge  which  is  a  legal  assign 
ment  or  transfer  of  property  actually  existing.  Th 
"promise"  confers  upon  the  bank  no  legal  title  to  th 
property  mentioned  in  it,  and  until  a  legal  transfer  ii 
form  of  a  pledge  is  made,  the  borrower,  if  dishonesi 
may  sell,  ii^ortgage  or  otherwise  deal  with  the  good 
intended  to  be  the  bank's  seciu-ity.  The  penal  pro 
visions  of  the  Bank  Act  are  not  applicable  to  equita 
ble  assignments.  It  is  important,  therefore,  to  obtaii 
a  legal  assignment  as  soon  and  as  often  as  there  ar< 
goods  capable  of  being  transferred.  Under  a  "prom 
ise"  the  bank  is  not  entitled  to  priority  over  unpak 
vendors,  unsecured  creditors,  or,  in  fact,  to  anj 
greater  rights  than  the  customer  himself. 

It  is  important  to  remember  that  when  a  promise 
to  give  security  does  not  exist,  a  bank  cuinot,  excepl 
under  the  substitution  clause  of  Section  88,  claim 
any  right  to,  or  security  upon,  any  other  goods  than 
those  pledged  at  the  time  of  the  advance,  and  era 


ADVANCES  ON  ASSIGNMENTS  «81 

incM:e!Sl^o^'^^'--  **^  written  p,„.i,e 
son,  and  «U  pS  wh«e1h»       ^    ''"""«  *'  '»■ 

0-gin.l  promise,  ol  TZ'^,  ^^7:^^'  "" 

niites  made  m  accordance  w  th  the  terms  of  ih^  « 

on  no  consideration  be  used  tn  r!L      f         *  """* 
under  the  other.  ^^^  advances  made 

4.  ^»«^men<.— The  assignment  or  dI«1».  •    • 
a«  exact  form  prescribed  brU.7Ba^k  A^       '^ 
like  efifect  (Piirure  M\   »„j  •      i      ,         ■*"'  *"■  °' 
hank  of  the  tMe  of  tb.       1  *  *^'  *"""^"  *°  ^e 
bribed  in  it     A  Lf    '"   T"  *°  *'"'  «°°''»  d«- 

-tten  promise  to  give  secu^iir^dT^tl     .^0^*: 


H 


I 


I  Hi 


Bbcvmity  umdm  SBC.  88  roi  Os%  o*  mobb  P»o»ibbbo»t  Notbi 

In  eoMkd«r»tion  of  BdfBUCM  of •  •  • 

dolUr*  mmdo  by  Th«  CanBdlan  Bank  of  Commerce  to 

tbe  underelfMd.  for  which  the  Mid  BbdIc  holds  the  following  blUs  or  note*  mxle 

by  the  undenlgned : 

Notee  dated 1»1 due m « 

Here  dewribe  folly 
the  biUe  or  note* 
to  taken. 


{ 


Rule  ont  the  elMiee 

of  producte,  etc., 
not  coTered  b» 
thie  Melgnmeni. 


the  prodncU  iricultnre.  the  foreet,  quBrry  Bnd  min» 

the  producte  ».     Ae  tee,  Ukee  end  rltert 

the  IWe  itock  or  deed  stock,  or  the  producte  thereof 

the  goods,  wares  end  merchandise 

the  grain 


mentioned  below  are/le  hereby  assigned  to  the  ssid  Bank  bb  seonrity  for  the  pay 
ment  of  the  said  bUte  or  notes,  or  renewals  thereof  or  substitutions  therefor  and 

intoreit  thereon.  .    .     t.     i.  »  »       a 

The  security  is  glTen  under  the  provUions  of  Section  88  of     le  Bank  Act.  and 

is  subject  to  the  proriilons  of  the  said  Act. 
The  said 


Rule  out  the  classes 
of  producte,  etc., 
not  covered  by 
ttiis  Bssignmenl. 


producte  of  agrlcuHure,  the  forest,  quarry  and  mine 

producte  of  the  sea,  lakee  and  rivers 

live  stock  or  dead  stock,  or  the  producte  thereof 

goods,  warea  and  merehandlBO 

grain 


are/is  now  owned  by  the  undersigned  and  are/U  now  f  i  the  possession  of. 


and  sre/U  fre.    from  any  mortgage,  lien,  or  charge  thereon   (except  previoui 
asti^nmente  to  the  Bank)  and  ar      a 

Dear  ibe  fully  the 
place   or   places 
where  the  goods     I     gituated 
are. 


{ 


and  are  the  following. 
Insert  as  full  de- 


sert as  full  de-     r 
scription  ss  pos- 
■ibl    of  goods  as- 
Rigiied,  e.g.,  logs,    . 


scription 

siW      " 

sigii'    .     _  .     - 

lumber,     wheat, 

etc.,  snd  specify 

the  producte  on 

hand. 

Dated  Bt tl»e- 


.day  of. 


.191. 


N  B  —If  necessary,  for  want  of  space,  the  bilta  or  notes  or  the  <>f««iPV''°  » 
the  SfioAt  may  be  set  out  in  schelule  to  be  annexe'  in  which  cnse  insert  in  tie 
appropriate  spaces  the  words  "those  mentioned  in  ...e  schedule  hereto. 


FlOU«X  48.      AUIOKXIKT 

282 


ADVANCES  ON  ASSIGNMENTS  tag 

OT  at  the  time  the  advance  !,  made.    When  assign- 
ments are  given  m  connection  with  a  general  or  con- 
Imuous  promise  to  give  security,  it  i,  advisable  to 
mdude  all  g  ods  covered  by  previous  assignments 
ffven  under  that  promise,  by  describing  «U  tCprop! 
er^  then  m  existence  and  in  the  customer's  possession. 
!ni  *h?ff  ?    .,""  "'''8™°'°*  •"  the  notes  represent- 
unJf  •  *°^'' V^^'f"''"'  to  date  should  be  dewly  de- 
taUed  m  the  blank  provided,  and  the  goods  and  the 
places  where  stored  should  be  described  as  definitely 
as  possible.  ^ 

The  advance  from  the  bank  should  be  described  as 
It  actually  ,s  and  not  m  general  terms  such  as  "all  ad- 
vances used  in  the  written  promise.  Assigmnents 
murt  be  given  as  security  for  a  specific  loan  in  money, 
or  for  a  specified  promissory  note  or  notes. 

The  best  description  is  one  which  takes  in  all  goods 

m  a  particular  place,  such  as  the  following:  "all ' '  e 

ogs.  Imnber,  lath  and  shingles  which  are  now  in  the 

oUowmg  place(s).  namely.  .  .  ."    This  description, 

Lw  i*   ?  11^   "-"'  "*  P™P"'y  '"^''"''^d,  would 

^1^     f^^  *°  '"''"'  ««"''«  «'e  "^signed.    It 
w^^Id  transfer  the  boo<1,  to  the  bank  subjecl^o  what- 

Z„?  T  T^^  "'""''y  '■"^  ""der  previous  «s- 
s'gnments  and,  m  addition,  all  goods  covered  bv  the 
description  that  had  been  added  since  the  date  of  the 
tost  previous  assignment.  The  words  "except  pre- 
"0.B  assignments  to  the  bank"  should  always  be  left 
m  the  form  when  there  are  previous  assignments, 
'ailing  this  general  description,  the  security,  to  be 


i 


S84 


BANKING  PRACTICE 


-J 


■31 


\\ 


good,  must  contain  such  a  definite  description  b; 
marks,  location  or  otherwise  as  will  enable  the  ban] 
to  identify  the  goods  without  question,  even  if  ther 
are  other  goods  of  the  same  kind  in  the  same  place  no 
assigned  to  the  bank. 

A  clear  and  definite  description  of  the  place  o 
places  where  the  property  is  stored  is  as  necessary  as  i 
description  of  the  goods  themselves,  and  indeed,  is  ai 
essential  part  thereof.  The  ponds,  yards,  etc.,  when 
logs  and  lumber  are  stored,  the  warehouses  about  i 
mill  containing  flour  or  grain  and,  in  fact,  all  th( 
places  in  which  the  goods  to  be  assigned  are  situated 
must  be  described  in  such  a  way  that  there  can  be  nc 
doubt  which  particular  places  are  meant,  and  so  thai 
if  there  are  other  places  of  a  similar  kind  belonging  tc 
the  customer  they  can  be  clearly  distinguished.  Sud 
a  description  as  "my  mill"  or  "my  elevator"  if  the 
customer  owned  two  mills  or  two  elevators  would  nol 
be  good.  If  the  customer  is  likely  to  use  any  othei 
than  the  usual  storage  places  the  phrase  in  the  written 
promise  and  assignment  should  be  made  broad  enough 
to  include  these  also. 

It  is  to  be  noted  that  the  act  authorizes  a  bank  to 
take  assignments  of  goods  whether  in  the  possession 
of  the  owner  or  not.  The  pledge  (Figure  48)  has 
been  framed  to  meet  customary  cases,  but  it  may  be 
altered  to  suit  the  circumstances  when  goods  are  in 
possession  of  another  person,  as,  for  instance,  at  a 
railway  station  where  the  agent  cannot  grant  a  ware- 
house receipt. 


r 


PiOMitt  TO  Give  Wamhoube  Rccvt*..  o-  o 

^HouB  Keceipw  o>  SEccmixr  cxde.  Sectioii  88 


TO  THE   HAKAOEB 


.191... 


THE. 


BANK 


Dexm.  Su: 


.^le'-SA-iJ^^^j-r^^^.  .'^^sjr  s  f-  - 


my/our 


under  either  by  VrA/lT/d/afJiT^r^h^ 

and/or  notes  of  or^  for  the  unde«5-n'i  '^  ''lu'"  °'  discounting  bills 

r  ™  undersigned  on  the  security  of  all  the 


(hereinafter  referred  to  as  'Wds''^ '  wWi^i. •  •  •  • 

may  be  owned  by  the  undeSed  7rom  f'^  ""i^  ".^"^^  or  which 
advances  made  under  this  credR  rem„in  *"?f  *°  ^'^  while  any 
or  may  hereafter  be  in.   .   _   .     ""'"  ""P*"^'  «nd  wf'ich  are  now 

situ^^"!!;!!'' ••••i !!!!!!!!! 




ments  under  Section  88  of  the  Bank  A  ^  '*"*^^'  ^y  ^^^  °f  assign- 
or part  thereof,  and/or  bilk  of  ladfn^'  "'h!""«^  ""  t''*  said  gofds 
for  ^s  of  the  above  kinds  o?  some  o*f  fh'^/"  warehouse  receipts 
«ng  Manager  for  the  time  beln^  ar^  i,^Lk  ''™'  '"?''  ^^  or  the  Act- 
of  the  undersigned,  to   rive   f?omf    ""^7  "PPo^nted  the  Attorney 

•ecurity  above 'SeationenndfosiSrV;.*™'  *"  '^'  Bank  S 
undersigned.  °  ^°  *'«"  tne  same  on  behalf  of  the 

.nd/t^^L^^^J^ntfrtiVrv*''^^  '.'o™  the  undersigned  bills 
bills  and/or   notes   sh«lT*„«t      advances   in    whole   or   part     Such 

created  hy  8u"h  aSvaJcli  S  sSV'f''''  ""^  P^^^  *he  iJdebtednesS 
,  This  undertakin.r  is  to  aoDlv  to  «n  ^T''"*  ^^"^  ««"<^  °"'y- 
"fed  "nder  the  said  1  ne  o^SeSt  he^fn'tZr'  "\t^'  '°  '^'  ""^er- 
goods  which  the  undersigned  mavfJomf-  **"  ^'"«  *^«*  aU  said 
P'ace(s)  shall  from  time  to  H  u  *.™«  to  time  have  in  said 
Section  88,  as  securitv  ?or  In  ^*  ^^  assigned  to  the  Bank  under 
or  warehouse  iSe^ls^^verS/^tTo'f  Th^  *fc*  '^L.^li'''  "^  '"^fn" 
unders,^^  may  receive  from  K  to  tJ™!.  "^Tf  ^'"'^^  ^»»ich  thi 
Bank  as  such  security.  *®  *""*  shall  be  given  to  the 

Yours  truly. 


Fromi  49 
286 


286 


BANKING  PRACTICE 


The  goods  and  their  location  must,  of  course,  h 
similarly  described  in  both  the  written  promise  am 
the  assignment. 


COKTRACT    WITH    CUSTOMEBS    ReSPECTIXO    WaBEHOUSE    RECEIPTS,    ETC. 

IN  CONSIDERATION  of  the  advances  being  made  to  the  under- 
signed  upon  the  security  of  warehouse  receipts  or  bills  of  lading, 
or  upon  security  under  Section  88  of  the  Bank  Act,  the  undersigned 
consent  and  agree  with  the  Bank  as  follows: 

1.  To  keep  the  property  covered  by  the  warehouse  receipts,  bills 
of  lading,  or  security  given  from  time  to  time,  insured  against  Arc 
to  the  extent  of  the  advances  made  thereon,  or  to  the  full  insurable 
value  thereof  in  case  such  ad\  >:ices  exceed  the  insurable  value,  and 
to  assign  the  policies  to  the  Bank  (or  have  the  loss,  if  any,  made 
payable  to  it).  Should  the  undersigned  neglect  to  keep  up  such 
insurance,  the  Bank  ma^  insure  and  hold  the  property  as  security 
for  the  premiums  paid  and  interest  thereon,  which  premiums  and 
interest  the  undersigned  will  pay  on  demand. 

2.  Any  sale  of  the  properfy  covered  by  any  such  warehouse  re- 
ceipt, biU  of  lading,  or  security  under  such  Section  88,  given  or 
which  may  be  given  to  the  Bank  by  the  undersigned,  may  be  by 
private  sale,  if  the  Bank  thinks  fit, — no  advertisement  or  public 
notice  of  sale  or  intention  to  sell  need  be  given, — and  if  three  day*' 
notice  of  general  intention  to  sell  be  given  by  registered  letter 
mailed  in  the  Post  Office  and  addressed  to  the  undersigned  at  the 
address  last  known  to  the  Bank,  such  notice  shall  be  sufficient,  and 
the  property  may  be  sold  en  bloc  or  in  smaller  quantities  either  by 
public  auction  or  private  sale  or  partly  by  each  mode,  at  any  time 
after  the  expiration  of  such  period  without  further  notice. 

This  is  to  be  a  continuing  consent  and  agreement,  and  is  to  apply 
to  all  warehouse  receipts,  bills  of  lading  and  securities  (and  the 
property  covered  thereby)  given,  and  which  may  be  given,  to  the 
Bank  by  the  undersigned. 
Dated  at the day  of ,  191.. 


FlOUBE  50 

An  assignment  of  goods  is  continuous  and  follows 
the  relative  goods  thru  all  processes  of  manufacture 
until  the  bank's  security  is  converted  into  the  finished 
article. 

5.  Declaration. — Every  borrower  under  this  sec- 
tion should  be  required  to  furnish  a  statement  at 


ADVANCES  ON  ASSIGNMENTS  «8T 

because  if  a  manutactmefIL  \T  ""^°'^'^- 
changed  the  status  of  tie  2d^f  ^  ^"  ""^  ^^^ 
manufactu«=d  artWes  or^  '  h  T  'T  "'""'■"'  *° 
substituted  other  ^'sl'  1"  f  "'"'■''*  ™y  have 

«%  pledged.    Th!tt::^L^oft:d°eeW  ''"'^■ 

^z  i:x?to*';t  :pKf  X  :r^^e  r- 

also  contains  a  statement  ««  f.  L  *^^  ^°™ 

or  other  priviieged^r  :rth:  ^s"  "'  '"'^ 

i»  »ot  in  a  position  to  ^Ve  perSSuv  Z  T'"*" 

"on  regarding  quantities  and  vdues  of  tt       T^ 

etc.,  assigned,  the  statemonf  I    ,1  Products, 

I  taken  wS,  resnect    f  ""'"^  nevertheless  be 

When  an  .V.  T  *^''''  '"'""««  «"<!  the  like 

""en  an  exact  inventory  is  tntpn  .^-  »     oi  •      , 

should  at  ^t,Wu^f  •'"*'"''''''  ""'^  «  """"Ker 
Ifad  ttrfK  •  ""^^l*  '"""*«■  informed  as  to  the 

'       ^Tc,  ^^  ""^  "^''  '""«'  «ven  with  the  best  sur- 


1* 


ft  f  1 1 '' 


;[ 


888 


BANKING  PRACTICE 


veillance,  so  much  depends  on  the  integrity  of  t 
pledger  that  a  bank  sliouid  not  consider  making  a 
vances  in  this  form  unless  the  applicant  is  a  perse 
of  unquestioned  integrity,  with  a  previous  reco] 
which  leaves  no  doubt  on  the  subject. 


TO  THI  UAKAOEB 


.191... 


THE BANK 


The  undersigned  submits  the  following  true  statement  of  products 

stock,  merchandise,  grain,  etc.,  and  values  thereof  as  t»t 

assigned  to   The Bank  undei 

Section  88  of  the  Bank  Act  by  the  undersigned  as  security  foi 
advances  made  by  the  said  Bank  to  the  undersigned.  ITie  said 
products,  stock,  merchandise,  grain,  etc.,  are  free  from  any  mort- 
gage, lien  or  charge  thereon,  except  previous  assignments  to  the 
Bank.    The  wages,  salaries   or   other   remuneration   owing  by  the 

undersigned  to  persons  employed  do  not  now  exceed  $ , 

of  which  not  exceeding  $ are  in  arrears.  The  under- 
signed hereby  agrees  with  The Bank  that  should 

this  statement  be  found  incorrect,  then  you  or  the  Acting  Manager 
for  the  time  being  may  declare  to  be  due  and  payable  all  moneys 
owing  by  the  undersigned  to  the  Bank  and  all  bills  and  notes  held  by 
the  Bank  in  respect  thereof,  and  on  such  declaration  being  made, 
the  said  moneys  and  bills  and  notes  shall  thereupon  become  and  be 
due  and  payable. 


I        (Statement  follows  showing  quantities,  values,  insurance,  etc.) 

FlOCBE  51 

Declasatiok 

In  making  advances  under  promise  to  give  security 
it  is  a  general  principle  that  the  money  the  bank  ad- 
vances should  go  directly  into  the  creation  of  the 
goods  intended  to  be  pledged.  No  portion  should  be 
diverted  to  any  other  purpose.  This  is  an  important 
matter  and  should  be  checked  constantly,  even  if  it 
is  necessary  to  make  a  special  visit  in  the  early  stag« 


ADVANCES  ON  ASSIGNMENTS  gao 

of  the  operations.     The  time  to  do  it  is  at  th- ..     • 

«  intricate  question  to"e!wrL^r^"f  °"  'l"^**" 
concurrence  of  several  wf^r'  -I^  '''"'^  ""^  *« 
venter  sheets.  Zfof'"tre°bo:;f  r'  't  ^^Jt'  '"• 
fore  advisable  that  there  shoiJ^h!'  i*  "  *''^'*- 

that  these  are  open  to  Z  Klf  H  s"  s'^t  ^'f '^ 
auditor  at  any  time.  °  '^""^  »° 

Care  should  be  taken  to  <.«.  «,.»    n 
Mtisans  are  paid  withh,  .  .  '  '"  workmen  and 

privileged  C  f^r^a  * '^'^'^'"^  '^'  ""1  *«*  no 
that  no  preferential  ot^    "'  *mandable,  in  fact, 

-urancT^'ntJstvrSttr^*  ^*"'-    ^ 
should  always  be  held  unnn       '''*''f''?*'"y  companies 

tamed  in  thJba^f^Sor '^  ""'  ""^  ^'""-  - 
not  rrSd  asXti:""'  ""'"  ''^^'«"-"*  •»-' 

sun-nce  co^y To^d  n  ^  pa^  T^rt'  '"'  "' 
proved.  It  must  not  L  ^  '^'^  ''^  ^°^  ''*«  ^o  be 
of  a  poilcvoTTj  ■  ''"^^  *''»*  *«  ™stence 
ence  of  the  "^'"^  ""  "7  ""^enee  of  the  exist- 
^^^^       the  merchandise  which  it  is  supposed  to 

-  0'  the  assSTeriTT  "'*/'*^'  ^^  P™"' 

venient  in  praS^  to  J^    ?    '""  ^°""''  ""'o  «"- 
Pract      to  adopt  i  special  foim  of  note 


1 


290 


291 


292 


BANKING  PRACTICE 


' 


V 

I 


(Figure  52  or  68),  with  a  promise  to  give  security 
appended  thereto.  Both  the  note  and  the  promise 
require  to  be  signed.  This  form  should  be  used  in 
connection  with  all  advances  under  Sections  86-88-90. 
The  note  should  preferably  be  drawn  on  demand,  as 
then  the  original  note  will  remain  current  in  the  pos- 
session of  the  bank  until  the  loan  is  retired.  When 
taken  on  demand,  the  note  is  made  to  read  with  inter- 
terest,  which  is  collected  monthy.  If  advances  are 
made  on  time  notes,  they  will  have  to  be  renewed,  and 
the  old  notes  and  all  other  documents  retained,  to 
show  the  continuity  of  the  transaction.  The  file  will 
show,  therefore,  the  current  note  and,  attached  there- 
to, any  renewed  notes,  the  promise  (if  any),  the 
pledge  and  the  insurance  policies.  Where  an  account 
is  operated  under  a  general  promise  it  is  not  necessary 
to  repeat  the  descriptions,  and  a  note,  similar  to 
Figure  52,  is  used. 

7.  Making  advances. — Before  making  advances  the 
manager  should  be  able  to  answer  the  following  ques- 
tions: 

1.  Is  the  customer  a  wholesale  dealer,  manufac- 
tiu-er  or  farmer  within  the  meaning  of  the  act? 

2.  Are  the  goods  of  such  a  character  that  they  can 
be  held  as  security  under  the  act? 

8.  Does  the  character  and  standing  of  the  appli- 
cant for  the  loan,  entitle  him  to  consideration? 

4.  Has  he  had  sufficient  experie-^'^e  to  insure  a  suc- 
cessful outcome  of  the  transaction's 


ADVANCES  ON  ASSIGNMENTS  293 

10.  Is  the  procedure  under  which  the  accounf  i.  f^ 
be  conducted  perfectly  cl«.ftr  f«  +1,  !  *^^""*  *«  *" 
bank  staff?  ^        "^  *°  ^'^^  ^'*°°^^^  a«d  the 

If  these  questions  can  be  satisfactorily  answered 

mS  Z  K^^'^  *°  — nend'the  cTS  t 
vanlrrrTto^    ?'  the  property  upon  which  ad- 
vances are  to  be  made  should  be  examined  hv  +»,« 
.g«r  with  a  view  to  aseertaining  X "Id^t ^Ttt 

necessary     The  goods  must  be  particularly  described 
must  Z     "  ^'T"  ""^  *"  «--8nme„t,  and li^re 

tin^  H        '^  ""''^  ''^  '^  «^^"'«»  «e  to  be  con- 
nued  durmg  a  season's  operations,  the  general  nr^m 

t^e^n^t  in^^r^:^  *t":r;  ^^— -  -^ 


111 


II! 


1  I 

■I  *  -^i 

I  ■!  I' 

i|  .  it 


ih'. 


S94 


BANKING  PRACTICE 


A  reasonable  margin  should  be  maintained  at  al 
times,  depending  upon  the  class  of  security.  If  th( 
margin  will  permit  and  rther  advances  are  subse 
quently  necessary,  for  instance,  in  order  to  saw  logs 
for  the  purchase  of  which  the  original  advance  wai 
made,  or  for  additional  expenditure  in  manufactur 
ing,  it  is  permissible  to  make  additional  advances  an( 
take  additional  assignments.  These  should,  of  course 
recapitulate  all  the  security  in  the  original  assignment 
including  additional  goods,  if  any.  But  under  n( 
circumstances  must  the  original  pledge  be  renewed 
the  goods  being  carried  out  to  their  final  realizatior 
on  each  pledge  given. 

All  that  is  here  said  as  to  taking  assignments  ap 
plies  equaUy  to  warehouse  receipts,  provided  thesf 
cover  property  which  is  clearly  a  portion  of  that  de- 
scribed in  the  promise.  There  could  be  no  doubt  or 
that  point  if  the  promise  is  to  give  security  by  assign- 
ment of  all  the  grain,  etc.,  now  held  or  hereafter  held 
by  the  customer,  or  by  warehouse  receipt.*?  covering 
the  same  or  any  part  thereof,  as  the  printed  form  pro- 
vides. It  may  be  well  to  mention  that  the  taking  of 
the  subsequent  warehouse  receipts  or  assignments  re- 
ferred to  above  is  not  a  substitution.  The  customer 
has  promised  that  he  will  from  time  to  time  give  secur- 
ity on  all  his  goods  for  all  his  advances.  The  subse- 
quent assignments,  therefore,  are  not  substituted  for 
previous  security,  but  are  given  in  addition  and  in  ful- 
filment of  his  promise  to  give  security  on  the  particu- 
lar goods  covered  thereby. 


ADVANCES  ON  ASSIGNMENTS 


ft9S 

Of  Ss^u':rar^~  r.*  ^"^  --"» 

borrower  for  current  ex  "en!. »  '*  ^  "'"''  "-y  *« 

his  business,  andT"LrtC  f  ^  '"  «'""^'=«™  "ith 

either  directly  or  "nM  in  «  m   ""■^'  "^  W'^* 
viou,  existing  loan  to^t'^;„™  ^^"■'^'"ent  of  any  p,^. 

Altho  not  essential,  it  is  foim^  r« 
most  cases  ,o  have  tw^  a.^^""    "7*^"'™""*  '" 
current  account,  from  whW?  V  f  '   ""^  "^x^tomer's 

-  be  made  .nd7"wt  ^'  3^^ teT" ^"'' 

from  theT^^Xtf  f  ^  T'^'^'^''  ''-'>«d 
from  thence^lie&e  ■''»'"  "'*'«^  ""d 
carrying  coUater.  3  the  ame™l  of"'  T  "''*"'  "' 
credited  as  is  charged  nnf^  '"**"*'  "»y  •« 

not  be  permitted  in  h.  *"  overdraft  should 

borrowfnScr  '^177^  """"'  "^  «  -'-- 

«.dhoM7Sus::Sj;ra?d\irf,T  '•"'"'- 

lateral  security  for  rtt  '  "'  '*'''"'?  as  col- 

in  its  favor  butt  i!n  ^'^'"'"^  «"y  debt  incurred 

pursuant  tn  o  ,    •«.  "^  advance  is  made  or 

prior;"  LrtTdvCet^adr  r""  -t 
""^L^htd\r-~-- 

orblllsofrdn;  i„,™h  ""y '-arehouse  receipts 
hoi..*  ~„  .  ™"S-  f  n  lendmg  on  the  security  of  ware- 
house receipts  or  bills  of  lading,  it  is  not  necessary  thit 


I  III 


i 


''I  I 


ADVANCES  ON  ASSIGNMENTS 


*97 
«  customer  should  he  a.  mo„..»  ^ 
iWpper  or  dealer  a,  in  """'^"^"■^■-  or  wholesale 
under  Section  M  "^  ""'  °'  ''<^^«n«»  made 

warehouse  receipt,  an  „!![•         "'"""^  «''"«>««  on 
ably,  the  specialtr  (m^rY^TjT  "'•  P"'- 
tho  the  dehvery  of  a  warX.      ^      "  ""^  "'««'•    Al- 
legal  tr«,sfer.Tt  is  ^SriTP'.  «'"^*""*«'  « 
lake  an  ordinar,.  pfJZl  T      "^  '^^^'''^  t" 

'^•rehouse  reeeipT^  ^!'L""  "^^""'^  "  ""de  on  . 
«««.  and  hi,  aeL*:dSt"r:Li::,'^ou,d  he  no- 

wholesaler,  purcha'erTrlSft'  *"''"  '""»  " 

other  goods  «ab,tituted "herZ     Th    "'"''•'"'  ""'^ 
substitute  is  accompanieH  hJ  ^  Pennission  to 

if  use  should  teaST"'^"*'<='"°»  that 

ne.eranowedunWthei  ''r'"  P''''''"'^'  «nd 
looked  into  and  the  p™nf^"''"'''r"'"«°"»  •>«-«  been 

It  is  important  to  n^^  I  ^T*"^""*  •'*<''*d  on. 
*ution  is,  ZZ  first  tt  '""^  ^"'™'°°  ^"  ^''''^i- 
"onal  upon  the  ^„^„Vof?heh'  1'''"^''  "'  «»'*■ 
obUin  sueh  consentXs  nit  affThi:"''  *°  ^"''"^  'o 
security,  there  should  ICvf^  *' ^''''^■'y  °^  *« 
''■■th  the  customer  ttatth?^  ^  '"  "nde«tanding 
■noved  without  the  b^kt  n  "'  "°*  *°  ""^  "" 

™le.  in  an  active  a^l'  T'"""  '»"^"*-    ^  « 

1-e  a  customer  tH^n Ve  Ckr""  *"  "" 

•^"1  me  Danks  consent  to 


m- 


!*  r  iJ 


■     '^     ST. 


Htpothecatiok  of  Wabzhovbe  Receipts  axd/ob  Bills  of  Laoiito 

WAREHOUSE  RECEIPTS  and/or  BILLS  OF  LADING  ACQUIRED 
BY  THE  BANK  as  Collateral  Securitj 


No. 


W/KorB/L 


iBSuefl; 


Dcaottption  of  Oooda 


The  above-mentioned  Warehouse  Receipts  and/or  Bills  of  Lading  are 
to  be  held  by  the  Bank  as  security  for  the  payment  of  the  indebtedness 
of  the  undersigned,  as  follows: 
Note  dated 191 due 191....,  9 


or  renewal(s)  thereof  or  substitution (s)  therefor,  and  interest  thereon. 
The  goods  covered  by  the  above-mentioned  securities  may  be  realized 
by  the  Bank  in  such  manner  as  may  seem  to  it  advisable,  and  without 
notice  to  the  undersigned,  in  the  event  of  any  default  in  payment  of  the 
said  indebtedness.  The  proceeds  may  be  held  in  lieu  of  what  is  realized, 
and  may  as  and  when  the  Bank  thinks  fit,  be  aj  propriated  on  account 
of  such  parts  of  said  indebtedness  as  to  the  Bank  seems  best. 

Figure  55 


h" 


298 


ADVANCES  ON  ASSIGNMENTS  J99 

remove  the  goods  for  each  day's  shipment,  and  the 
only  pracbcable  plan  appears  to  be  to  have  a  gene™! 
understandmg  with  the  customer  (Figure  56)  She 

ottLTt^ '"'''  f""  ""^ '"  *™'  --i  -  *t^^ 

of  Surl  t  I  "'"'''  ""''  ^'"""  ™'"'='  that  is, 
of  rourse,  t .  iuch  an  .-xtent  as  the  proceeds  of  the 

^ds^removeu  a.,  ac,  applied  directl^  to  reduce  the 

Under  the  system  of  taking  a  general  promise  (as 
well  as  a  promise  with  each  note  discounted)  to  Jve 
security  on  all  the  goods  which  the  customer  may  h^ve 
from  tune  to  time  in  certain  named  places,  and  tafc! 
ing  assigmnents  at  frequent  intervals,  the  value  of  the 
clause  respecting  substitutions  is,  ■„  many  instances 
not  mrportant.    It  would  be  of  benefit,  hLever"un- 
der  certam  circumstances,  for  instance,  where  goods 
have  been  removed  and  others  taken  into  stock  subse- 
quent  to  he  date  of  the  last  assigmnent  and  the  bor- 
rower faded  or  was  seized  up.    In  such  a  case,  if  the 
goods  were  of  substantially  the  same  character  as 
those  which  they  replaced,  the  bank  would  have  a  right 
to  hold  them  under  the  last  assignment. 

Speaking  generaUy,  it  may  be  said  that  the  benefit 
oi  this  clause  will  be  most  felt  when  security  has  been 
«en  upon  any  stock  of  grain,  minerals,  logs,  live 
stock,  etc.,  at  a  time  when  the  quantity  of  stock  is  at 
the  highest  pomt.  The  removal,  with  the  bank's  con- 
sent, of  a  portion  of  the  goods,  and  the  substitution  of 
other  goods  of  the  same  character,  would  leave  the  as- 
signments appUcable  to  all  the  remaining  stock. 


1 1  r 


m  ■  i 


m 


191.. 

THE BANK  pursuant  to 

Section  88  of  the  Bank  Act  hereby,  until  this  provision  is 
withdrawn,  allows   

to  remove  from  time  to  time  in  the  ordinary  course  of  busi- 
ness, for  the  purpose  of  delivering  the  same  to  purchasers 
thereof,  the  products,  goods,  wares  and  merchandise,  live 
stock  or  dead  stock  or  the  products  thereof,  or  any  por- 
tion or  portions  thereof,  on  the  security  of  which  the  Bank 
has  lent  or  may  lend  him/them  money  under  the  provisions 
of  said  Section,  and  to  substitute  respectively  therefor 
other  products,  goods,  wares  and  merchandise,  live  stock 
or  dead  stock  or  the  products  thereof,  respectively  of  sub- 
stantially the  same  character. 

For  The Bank 


MANAGES 


The   tTWDEHsioNED,  in   consideration  of  the  foregoing  permission, 

hereby  agree   . .  with   The Banlc  not  to  remove 

any  of  the  said  products,  goods,  wares  and  merchandise,  live  stock 
or  dead  stock  or  the  products  thereof,  in  respect  of  which  the  said 
permission  is  given  otherwise  than  in  accordance  therewith,  and 
within  a  reasonable  time  from  any  such  removal  (what  shall  be  a 
reasonable  time  in  each  and  any  case  to  be  determined  by  the  Man- 
ager for  the  time  being  of  The Banlc  at 

,   whose   decision   shall    be   final)    to   substitute 

respectively  for  the  products,  goods,  wares  and  merchandise,  live 
stock  or  dead  stock  or  the  products  thereof  so  removed  other  goods, 
wares  and  merchandise,  live  stock  or  dead  stock  or  the  products 
thereof  respectively  of  substantially  the  same  character  as  and  of 
not  less  value  than  those  so  removed,  and  in  case  of  breach  of  this 
agreement  the  undersigned  agree  . .  that  the  said  Manager  may  during 
the  continuance  of  such  breach  declare  to  be  due  and  payable  all 
moneys  owing  by  the  undersigned  to  the  Bank  and  all  bills  and  notes 
held  by  the  Bank  in  respect  thereof,  and  on  such  declaration  being 
made  the  said  moneys  and  bills  and  notes  shall  thereupon  become  and 
be  due  and  payable. 


FiouRii  56 

SuBSTiTcnoK  Agrxekixt 
300 


ADVANCES  ON  ASSIGNMENTS  301 

on  goods  properly  assigned  to  it.     For  exaZk 
-;^;ua,  grain  .as  ttTorfe^rSS 

-qrtc.eari^-~r--s^ 

season  begins  or  ends.    But  there  canle"  o  "sHn 

wit^hln  rt""'  "^  "'™"'"'  "^''^  ""^  ""t  retired  in  fuU 
withm  the  year,  ,t  is  advisable  to  act  on  the  theorv 

Z^tZ      !      the^'^P-ration  of  the  particular  sea- 
son of  the  customer's  business  to  which  it  refers     The 

^w^  r"r  ""Tr  ™'^^"''^« '« ^'™  "-^ 5 

oy  way  of  assignment  from  time  to  time  "while  any 


r  4 


%i  a 


S02 


BANKING  PRACTICE 


0 


■ii 


( 


advances  made  under  this  credit  remain  unpaid,"  anc 
under  this  clause  a  bank  would  be  entitled  to  continue 
taking  assignments  for  loans  carried  over  the  end  ol 
the  season  until  such  time  as  they  are  entirely  cleanec 
up.  Renewals  of  notes  representing  advances  carried 
over  the  end  of  the  season  should  not  be  merged  witl 
notes  representing  new  advances,  and  the  former 
should  be  liquidated  first.  It  is  not  necessary,  how- 
ever, to  take  separate  assignments  for  the  renewals,  if 
any,  of  advances  carried  over. 

While  assignments  of  new  goods  may  be  taken  for 
advances  cai-ried  over  the  end  of  the  season,  and  while 
the  same  form  of  assignment  may  be  used  for  new  and 
old  advances,  the  proceeds  of  advances  on  a  new  sea- 
son's account  should  not  be  used  to  hquidate  any  por- 
tion of  the  advances  carried  over  from  the  previous 
season.  This  requirement  can  best  be  observed  by 
opening  new  accounts  in  both  the  liability  and  deposit 
ledgers  for  the  new  season's  business,  and  keeping  the 
old  season's  business  entirely  separate. 

When  the  old  hability  account  is  fully  liquidated  the 
old  deposit  account  may,  of  course,  be  closed. 

It  should  be  borne  in  mind  that  the  object  aimed  at 
in  conducting  separate  accounts  is  to  make  sure  that 
not  a  single  dollar  of  indebtedness  which  existed  before 
the  new  promise  was  taken  is  paid  out  of  the  proceeds 
of  the  advances  charged  to  the  new  liability  account. 

11.  Default. — Provision  is  made  in  the  Bank  Act 
(sub-section  3  of  Section  88)  for  the  sale  of  goods,  in 
case  the  bank  finds  it  necessary  to  realize  on  its  secur- 


ADVANCES  ON  ASSIGNMKNTS 


...  -  SOS 

'ty,  owing  to  the  non-pavment  „f ,.    j  , 
tion  is  n,ade  betwee„Sc"s  of  f.';''*-    ""  '"^*™- 
goods.    For  the  former  th.   »  "'''  ""''  ""'«'• 

days' notiee  should  be  given  thli  7""'''  "■*'  ^'^y 
other  goods,  only  ten  davJ  ^  ^^'"' '^"'••°"^^™» 
place  of  sale  is  required  In  h  .^  °^  ""^  '™«  ""d 
sale  must  be  by  publL  aunf^  T"''  ''°'^^^«''  th^ 

feing  in  at  lealtC  LTn  ""^  '!'"  ""^  "^-er- 
of  Quebec  one  of  tl  ^  ^Tt  b  "  '^'  ^"^'"- 
however,  the  consent  ^n'^^riC'^'"  ^f™*'  If. 
heen  obtained  the  above  nZ!i^       ^  P'^'s^'  ^ad 

forth  m  Sections  141-2-3  4      au     \   ^^^'^  ^^^  ^^* 
fine  if  it  takes  securitv  fn  ^""^  ''  '"^j^^*  to  a 

to  eo.p„  .i^zz£:j:r:;t:'  r  ^^  ^^^^^ 

tion  w  th  the  sale  nf  nl.  i   •  "^  "'^^ '"  connec- 

borrcwer.  It  i  ;„'  g^*  '"n"'  **"=  '''^f-"  "^  *e 
to  make  a  fal  e  stltem^t  "  "'^'"^'^  ^"^  ""y  P^^»n 
pledge,  or  alie^atl  a^TthTt""  "'^'P'  » 
der  such  pledcc  Thl T  .  ''*"'''  '^'^•"•'ty  """ 
printed  on  the  ware^<te  T'  "'""^'^^  ^'«'""  ^ 
to  the  attentior-ti^Srd  ""^^'^^  "-«-' 

ing  ad^ZtidT stT'"'''  """'^  O""'^"'"'  "^  "■at. 
study  of  tTcA^T      T"""'  ^'^-^  '•'^"'""'^  eareful 

-dbyX^L:d:irtitits^^ 

generally^made  by  banks  in  coSn":^,^^  r 


4:   }, 


804 


BANKING  PRACTICE 


[ill 


h\  ■ 

■  A  '  •   ' 


ir 

i*  I 


s. 

-  %■■ 

■   Sc: 


der  this  section,  due  to  carelessness  in  the  details  o 
taking  the  security.  In  some  cases  banks  have  loj 
their  rights  to  the  security.  Security  taken  under  thi 
section  gives  a  bank  preference  over  other  creditors  b( 
cause  the  bank  created  its  own  security  by  advancin 
the  money,  and  in  the  event  of  the  failure  of  a  cu; 
tomei  this  preference  may  be  attacked.  If  any  fla^^ 
exist  in  the  security  a  bank  has  practically  no  def  ensi 
Where  this  class  of  security  is  taken,  therefore,  it 
essential  that  the  procedure  be  strictly  in  accordanc 
with  the  legal  requirements,  if  the  security  is  to  be  £ 
all  relied  on. 

The  most  important  thing  to  remember  is  that  tl 
security  under  this  section  cannot  be  taken  to  secui 
any  pre-existing  debt,  and  to  obtain  title  it  is  necei 
sary  that  the  pledge  should  be  contemporaneous  wit 
the  advance,  or  pursuant  to  a  written  promise  to  gi\ 
security  either  prior  to  or  at  the  time  the  advance 
made. 

When  a  manager  has  had  little  or  no  experience  i 
this  class  of  loan,  it  is  advisable  that  in  making  appl 
cation  for  the  credit  he  should  outline  the  necessar 
procedure  as  he  understands  it,  referring  to  the  forir 
he  intends  to  use  in  this  connection.  Head  office,  i 
reply,  will  correct  or  confirm  his  conclusions.  Assu 
ance  is  thus  made  doubly  sure. 

As  already  mentioned,  the  above  brief  explanatio 
of  this  important  class  of  loan  is  not  intended  fcr  d 
rect  application,  but  rather  as  a  general  commentar 
on  the  specific  instructions,  which  are  mcluded  in  tl 


ADVANCES  ON  ASSIGNMENTS 


305 


had  sufficient  opport^L^^l'''  "T,^'^^  ^'^'  "«* 
actuates  the  law  ^       ^^^  *^^  ^P^^*  which 


REVIEW 

Under  what  circumstances  does  the  B«nt  a  * 
make  advances  to  wholesale  purchaser,  .f     ^^*  Pe«nit  banks  to 
manufacturers?  pu'cnasers  of  goocs?     To  wholesale 

What  is  an  assignment? 

Why  IS  a  declaration  important? 
^  mat  ^formation  must  the  manager  have  hefo.  making  ad- 

What  conditions  govern  loans  on  warehouse  receipts? 


it  %  i« 


fi 


CHAPTER  IX 

INTERNAL  INSPECTION 

1.  Branch  inspection. — At  irregular  intervals  ar 
at  least  once  a  year  every  branch  is  visited  by  an  ii 
spector  and  his  assistant  from  the  head  office,  and 
thoro  audit  of  the  books  and  assets  of  the  office  is  mad 

An  inspection  consists  of  two  kinds  of  examination 
namely,  verification  and  valuation.  The  first  is  calle 
the  audit  or  routine  inspection,  and  consists  of  a 
audit  of  all  the  books,  and  a  verification  of  the  phys 
cal  existence  of  the  assets  of  the  branch,  as  well  as  tl 
correctness  of  the  liabilities.  All  routine  matters  ai 
carefully  checked  to  see  if  the  head  office  instructioi 
are  being  conformed  with. 

The  first  part  of  the  inspection  is  made  by  a  routir 
inspector,  or,  as  he  is  sometimes  called,  audit  office 
who  either  accompanies  or  precedes  the  senior  inspe( 
tor,  with  one  or  more  assistants,  according  to  the  siz 
of  the  branch. 

The  second  phase  or  inspection  proper  is  made  by 
senior  inspector,  and  consists  of  a  thoro  analysis  an 
valuation  of  the  loans  and  other  assets  of  the  brand 
The  senior  inspector's  particular  duty  is  to  discus 
with  the  manager  the  inspection  liability  return  witl 

306 


INTERNAL  INSPECTION  807 

a  view  to  obtaining  a  valuation,  as  correct  as  possible 
of  tl,e  loans  and  securities  held  by  the  branch 

ro  be  a  good  inspector  requires  special  training  and 
quahfieations.  In  the  first  place,  a  thoro  knowfeS« 
of  all  conditions  of  branch  work  is  essential,  «Jm 
framing  caa  be  acquired  only  thru  actual  eiZTi 
m  ^branch  positions,  frozn  that  of  managTd^ 

The  inspector  foUows  the  audit  officer  as  soon  as 
ttemspection  report  on  liabilities  is  completerth^ 
m  the  case  of  smaU  branches,  which  have  but  few 
large  loans,  the  liabUities  can  be  discussed  by  the  r^Z 
me  inspector  or  by  correspondence,  and  a  ^sit  fZ 
an  inspector  IS  therefore  not  necessary 

2.  TAemA-t-Altho  the  work  involved  by  an  audit 
■s  too  specific  to  be  dealt  with  fully  i„  this  ch'ter  a 

^11  beT  7*'°"  "^  "'  '"^*'«^'  ■""»  requirfmenta 
u!t^fjr""  ?  ^'"P'"'^'^"^  ««»»«  of  the  essential 
features  of  Ca.  adian  practice.  Practically  all  banks 
.re  sunilar  in  their  method  of  auditing,  tho'^with  "me 

Msml^J         "^  ^"^^"''  ""'y  •>«  eonsidered  as 
luIhUmg  the  requirements  of  an  average  audit: 

thl  '"**  °ffl'=«'-  ""d  his  staff  of  assistants  time 
their  arnval  m  a  town  so  as  to  reach  the  office  at  the 
^lose  of  the  day  s  business,  and  thus  interfere  as  Kttle 
as  possible  with  the  service  to  the  pubUc.  Their  ar- 
rival IS  of  course,  unheralded.  Immediately  on  en- 
tenng  the  office,  control  of  the  safe  is  obtained  and  the 
louowmg  taken  into  custody: 


808 


BANKING  PRACTICE 


If  ■■  • 


k 


Treasury  and  teller's  cash,  etc. 

BiU  cases  containing  discounts,  collateral  notes,  coUec 
tioM,  etc. 

Cash  books,  vouchers  for  the  day,  including  letters  re 
ceived. 

Current  account,  general  and  saving  ledgers. 

Collection  register. 

8.  Cash  and  securities. — The  auditor  then  proceed; 
to: 

Count  in  detail  the  teller's  cash  and  the  treasury  cash. 

Take  charge  of  deposits  made  for  the  clearing  house  anc 
see  that  they  are  credited  by  other  banks  the  following  da^ 
without  deductions,  or  if  deductions  are  made,  ascertair 
their  nature. 

Obi  i!.-  verifications  of  balances  due  to  or  by  other  banks. 

Aar<  -lain  from  the  teller's  cash  statement  book  whethei 
or  not  the  cash  has  been  examined  in  detail  at  irregular  in- 
tervals at  least  twice  a  month. 

See  that  a  satisfactory  explanation  is  entered  in  the 
teller's  cash  statement  book  opposite  each  important  cash 
over  and  eash  short  item. 

Check  list  of  collateral  securities  with  the  securities  them- 
selves and  with  the  re^ster. 

Examine  all  life  and  fire  insurance  policies  and  see  that 
they  are  properly  assigned  to  the  bank  and  otherwise  in 
form. 

See  that  all  securities  are  properly  hypothecated  and 
otherwise  in  order. 

Check  list  of  securities  held  for  safe-keeping  with  the 
documents  or  packages  themselves. 

Send  lists  of  all  negotiable  securities  held  as  collateral 
or  for  safe-keeping  for  verification  by  owners. 

Verify  existence  of  loans,  trade  bills,  and  past  due  bills, 
initialing  for  each  item  in  the  diary  or  past  due  bills  register. 

Make  a  summation  of  the  totals  in  the  bill  diarj'  and 
compare   with   balances    in   the   general   ledger.     The  bill 


INTERNAL  INSPECTION 


809 

totals  have  been  verifipd  *"*  *'*'^'  ""*''  **»* 

Examine  bills.  Take  a  memorandum  of  afl  it.m  * 
correctly  drawn  in  every  respect  «nTh„!^  *i.  T  ".°* 
manager  or  accountant  to  be  out  in  a  **'""  *°  **>* 
possible.  P"*  *"   «'^«'*  »8   soon   as 

4.  TAe  ledgers,  etc. — 

with  cash  book,  and  compare  cash  book  entries  with  rL 

rent  account  and  savings  ledgers.  ^  ™' 

standfnl\r"?''  ^^«*/^<="rrent  account  balances  and  out- 

I    r«i        ^  :?^^''H''  ^"^  afterward  instruct  ledger-keeoer  to 

8        TaTe  n'^irV"  ^^  "^"^^  "^^  ^"  ^^«  balance^"^"  *' 

inspectlof  rettn."  '""  """^^  '^'^"'  ^^«*-^  ^-^—  on 

off^if"  *^^  ^"?"?*  *'^°""*  ^^*^«^r  ^*«  »>«en  balanced   call 

™t3  ledgers  and  see  if  all  particulars  req-ared  have  be^n 
o&  ™'''  "^"""^  '"O'^l"' Sheets  have  S 


810 


BANKING  PRACTICE 


;-|l  .  '    ■  A 


i§mii 


See  that  proper  entries  have  been  made  in  deposit  re 
ceipt  account  in  the  general  ledger  for  all  receipts  issued 
and  paid  since  last  inspection. 

Examine  indorsements  on  receipts  paid  since  last  inspec- 
tion, and  see  that  they  are  tied  up  and  scaled  with  the  in- 
spector's private  seal. 

Examine  powers  of  attorney,  resolutions  and  documents 
respecting  signing  officers. 

Check  date  of  last  certification  of  each  ledger  balance. 

See  that  certificates  are  properly  filled  in  and  signed. 

5.  Sundries. — 

Compare  inspection  liability  sheets  prepared  by  the  staff 
with  liability  ledger. 

Examine  entries  in  cash  item  register  since  date  of  last 
inspection,  noting  any  items  outstanding  an  undue  length 
of  time. 

Ascertain  if  any  items  have  been  put  thru  as  cash  items 
which  should  have  been  shown  on  discount  return  as  trade 
bills  remitted. 

See  that  the  following  books  and  records,  etc.,  are  prop- 
erly kept: 

Manager's  diary 

Discrepancy  book 

Record  of  lost  drafts,  stopped  checks,  etc. 

Overdrafts  register 

Circular  book 

Overdue  debt  register 

Postage  account 

Record  of  examination  of  bank  premises 

Character  card  file 

Receipt  for  duplicate  keys,  etc. 

Rates  book 

Record  of  mercantile  agency  reports  received. 

The  following  lists  and  statements  are  prepared  by 
the  staff  and  handed  to  the  manager  or  accountant, 


INTERNAL  INSPKCTION 


311 

Adjustments 
Assignments  of  goods 
Balance  sheet,  general  ledger 
Bank  premises,  safes  and  vaults 
By-laws,  minutes,  etc.,  list  of 

c3;t::„ttcr  -"""- »'  ^— ■ 

Deposit  receipts  outstanding 
Urafts  issued  accounts 
Insurance  policies  held—fire 
Insurance  policies  held— life 
Letters  of  credit  outstanding 
l-etters  of  guarantee 
Liabilities  of  customers 
Partnership  agreement 
Past  due  bills,  list  of 
Powers  of  attorney,  list  of 
Reports  on  officers 
Securities,  collateral 
Securities,  safe-keeping 

TrYdi"??'^^"?'  purchased  and  current 
Trade  bills  remitted,  summary  of 
Verifications,  current  accounts 
Verifications,  letters  of  credit 

Waivers 

~  iiabiaty  m  detail  whether  overdue  or  not  Tl,. 
«fder,  and  the  totals  of  the  loans  and  trade  bills  in 
opposite  the  names  of  the  customers.    All  securities 


312 


BANKING  PRACTICE 


should  be  shown  in  detail  with  the  manager's  estimate 
of  values.  The  following  information  should  appear 
in  the  report  on  each  important  account: 

Names  and  ages  of  individuals  or  partners 
Head  office  authorization  and  expiry  date  of  credit 
Total  fire  insurance  carried  both  on  liquid  and  fixed  as- 
sets, and  the  amount,  if  any,  assigned  to  the  bank 

Discussion  of  customers'  position  and  balance  sheet  giv- 
ing copy  of  the  latest  statement  of  affairs  and  notes  as  to 
the  changes  of  importance  therein,  indicating  progress  or 
the  reverse 

Remarks  regarding  customers*  wills  or  deeds  of  partner- 
ship, having  reference  to  the  way  in  which  the  bank  would 
be  affected  by  the  death  of  the  customer 

In  reporting  on  farmers'  and  other  casual  loans,  the 
original  date  of  the  transaction  must  be  given,  if  any  por- 
tion of  the  advance  has  been  running  for  more  than  twelve 
months.  The  object  of  the  loan,  time  of  repayment  and 
source  from  which  the  money  is  to  come,  should  also  be 

stated 

The  purpose  for  which  a  loan  has  been  granted  and  the 
source  of  repayment  should  be  stated—also  the  probable 
course  of  the  advance,  unless  payment  is  assured  at  ma- 
turity. 

In  connection  with  all  important  accounts  the  fol- 
lowing points  should  be  fully  discussed  with  the  man- 
ager by  the  inspector,  and  the  significant  features 
made  the  subject  of  correspondence: 

Personal: 

Moral  character,  habits,  and  business  ability 

Past  record 

State  of  health 

Life  insurance  carried 


%■ 


INTERNAL  INSPECTION 


313 


General: 
L.  financial  progress  satisfactory? 

past  year  P'"''  "'  ""I'Mce  monthlji  for 

Promptnew  in  meeting  obligation, 

«e.tH*»r  "  "'"''""°"'  "'""  "'"'»"  <""»"«  the  bu.i- 

Value  of  coUateral  held 

Value  of  the  account  or  the  connection 

Ii  a  wliolesale  house; 

Distribution  and  classification  of  risks  in  rr«H;t    » 
n.er^  also  any  recent  or  anticipatedtsses        "  '"  ™"°- 

rercenuge  of  .Js  returned  unaccepted  or  unpaid. 

in  tt7!SlffI""';  ^^'"^  ""  "'^  ""t^fnding  features 
mtte  different  accounts  with  the  manager,  the  in- 

First-class  business 

ditfonf  h^f  *^'f ''*'^'  ^""^"^^  °^  *^^  connection  or  local  con- 
ditions, but  not  on  Its  merits  otherwise 

Undesirable  but  probably  collectible 

Locked  up  but  eventually  coUectible 

Marginal  loss  probable 

Bad 


su 


BANKING  PRACTICE 


A.  Secured  by  mortgage,  etc. 

B.  Interest  being  set  aside  as  a  contingent  fund 

C.  Not  producing  interest. 

On  his  return  to  the  head  oflace,  the  inspector  takes 
up  with  the  branch  and  records  by  correspondence 
any  objectionable  features  in  the  accounts,  which  he 
thinks  require  adjustment  or  comment. 

REVIEW 

Of  what  does  a  bank  inspection  consist? 
How  are  the  securities  and  cash  checked?    The  ledgers? 
According  tO  what  ratings  does  the  inspector  Talue  all  the  ac- 
counts? 


CHAPTER  X 


BANK  COST  ACCOUNTING 

1.  'Need  of  a  coat  «2^«<m.— PracticaUy  every  bank 
of  any  importance  in  the  United  States  has  instaUed  a 
system  of  cost  accounting  and  made  a  careful  study  of 
ttie  pnnciples  involved.  In  Canada,  however,  very 
httle  attention  has  been  given  the  subject  by  the 
bwiks,  altho  in  ahnost  every  other  line  of  commercial 
industry  cost  accounting  is  accorded  thoro  consider- 
ation, and  in  fact  has  become  an  absolute  necessity 
under  modem  business  conditions. 

The  necessity  of  a  cost  system  to  a  bank  is  really 
greater  than  in  any  other  business,  owing  to  the  nar- 
row margin  of  profits  on  the  gross  amount  handled 
m  bankmg,  and  the  number  and  variety  of  services 
rendered  by  the  banks  to  their  customers  and  the 
public  without  remuneration. 

In  the  stress  of  competition  most  banks  overlook 
the  fact  that  every  transaction  made  for  a  customer, 
no  matter  how  simple,  bears  a  basic  cost  to  the  bank. 
They  have  allowed  the  public  to  encroach  gradually 
on  their  legitimate  exchange  and  other  profits. 
Banks  are  not  only  rendering  a  great  many  services 
for  nothing,  but  frequently  at  a  loss  to  themselves. 
The  public  has  been  quick  to  grasp  this  weakness  of 

816 


$■ 


316 


BANKING  PRACTICE 


the  banks,  and  has  naturally  pressed  its  advantage  to 
the  utmost. 

Until  the  beginning  of  the  present  century  the 
profits  obtained  from  the  banking  business  were  large 
enough  so  that  the  loss  from  a  few  unprofitable  ac- 
counts had  no  appreciable  effect  on  a  bank's  net  earn- 
ings. Competition,  however,  has  brought  conditions 
to  a  state  such  as  has  existed  for  some  time  in  other 
lines  of  business,  so  that  it  has  become  more  and  more 
necessary  that  all  the  business  handled  by  a  bank 
should  show  a  certain  amount  of  profit  or,  at  all 
events,  not  be  transacted  at  a  loss. 

The  development  of  a  new  class  of  business — that 
of  small  and  unremunerative  checking  accounts — the 
vast  increase  in  the  volume  of  checks,  the  tendency  to 
carry  active  checking  accounts  in  the  savings  bank 
department  and  the  constantly  increasing  cost  of 
operating,  have  made  the  analysis  of  the  profit  or  loss 
on  individual  accounts  an  absolute  necessity.  The 
only  remedy  for  excessive  or  unintelligent  competi- 
tion among  Canadian  banks  lies  in  an  accurate 
knowledge  of  costs.  No  ordinary  argument  will 
appeal  to  a  branch  manager  sufficiently  to  restrain 
him  from  offering  extra  inducements  to  customers,  as 
long  as  he  honestly  believes  that  he  is  securing  such 
business  at  a  profit.  But  few  managers  would  per- 
sist in  offering  the  goods  or  the  services  of  the  bank 
for  less  than  cost  if  they  knew  the  actual  facts. 

With  expenses  constantly  on  the  increase,  and  with 


x* 


BANK  COST  ACCOUNTING 


817 
returns  for  banking  services  steadily  diminishing  the 
banks  have  been  forced  to  study  seriousirthe" 
bon  of  expenses  both  by  the  introduction  y^;^td 
labor-saving  methods  in  the  work,  and  by  svsteZli^ 
stady  of  costs,  with  a  view  to  adJustmentTeS 

?■""  f  ^y  """""t^  »  transactions  which  h^ve 
hitherto  been  handled  at  a  loss. 

2.Principle»  of  cost  accounting. —TbeTe  are  a 
great  ™„.y  factors  entering  into  what  «„"  s  a 
profitable  account  to  a  bank.  The  amount  of  credit 
kiance  maintained  is  not  the  principal  factor  tTt 
considered  but  the  per  item  cost  of  tbe  entries  In 
^er  words,  «.  account  with  a  balance  of  only  $200, 
^tt  a  few  entries  can  easily  be  more  profitable  to  L 
bank  than  one  with  a  balance  of  $1,000  or  more,  but 

Mg  item"**  "  "^  '''^^''  ^^^'^  '""^  °""^™<i- 

(a)  Is  the  account  producing  a  profit? 

(b)  Is  the  account  handled  at  a  loss? 

(c)  If  the  latter    exactly  what  increase  of  balance  or 
other  change  of  conditions  governing  the  account  wHl  change 
the  loss  to  a  profit?     Tho  an  account  may  be  operated  ft 
an  apparent  loss  it  frequently  happens  thL  theTe  are  col 
arX.^lenT**'^^   "'^^'  ^"'^"*   '^   continuation  Tf   the 

tojfiaJ^^^rs:^^  ^^^^ '-'  -^«^  -^^««^ 

sioM?  ^^  *^^  depositor  entitled  to  any  additional  concea- 


818 


BANKING  PRACTICE 


■  »  f 


In  considering  these  points  the  following  are  axio 
matic: 

(a)  In  order  for  a  deposit  account  to  be  profitabl* 
the  balance  must  be  a  credit  balance. 

(b)  Any  account  is  profitable  if  the  income  fron 
it  exceeds  the  expense  of  keeping  it. 

(c)  In  deteimining  irvLv.ther  or  not  an  account  ii 
profitable  the  amount  of  credit  balance  maintained  i; 
not  necessarily  the  principal  factor  to  be  considered 
In  the  valuation  of  an  account  the  amount  of  the  bal 
ance  is  of  secondary  consideration  as  compared  will 
the  per  item  cost. 

(d)  In  reviewing  an  account,  the  minimum  weekh 
credit  balance  is  the  one  that  determines  the  lending 
value  of  the  balance.  Care  should  be  taken  to  dis 
criminate  between  the  value  of  an  average  balanc( 
and  a  steady  balance;  the  former,  if  a  violently  fluctu 
ating  account,  is  valueless. 

(e)  Discount  on  loans  and  trade  bills,  as  well  ai 
interest  on  debit  balances,  should  not  be  taken  intc 
consideration  in  this  connection.  The  net  discounl 
or  interest  earned  is  regarded  as  a  part  of  the  profit 
accruing  from  the  general  loanable  funds  of  the  bant 
and  therefore  cannot  be  regarded  as  a  benefit  derivec 
from  an  individual  account,  which  receives  due  credil 
for  the  amount  of  balance  maintained  on  deposit. 

(f )  In  considering  unprofitable  accounts,  one  poini 
should  always  be  looked  into,  especially  in  the  case  ol 
accounts  in  newly  established  branches.  This  con- 
sideration is  whether  or  not  the  actual  lo88  to  the  bank 


BANK  COST  ACCOUNTING  319 

in  carrying  the  account  is  less  than  the  amount  of  tixed 
charges  which  such  an  account  is  carrying 

(g)   General  conditions  of  policy  must  govern  a 
bank  in  the  consideration  of  cost  figures,  and  the  in- 

TJT7.W  T*  '^'*'^  ^^^^  ""*  ''^^^y  the  elimi- 
nation of  this  element.     It  does  mean,  however,  that 

m  deciding  upon  a  concession  in  any  individual  case, 

the   bank   wiU   have   an   exact   knowledge   of   the 

costs  and  earnings  of  the  account  and  wiU  know 

r^of  '*   ''   ^^*'"^  """"^  *^"  ^'*"^^   ^°«* 

(h)  It  is  important  to  bear  in  mind  that  an  appa- 
rently large  balance  is  not  necessarily  remuneratL 
It  may  be  partly,  wholly,  or  more  than  offset  by 
Items  m  transit  or  process  of  clearing,  so  that  without 
an  accurate  analysis,  a  customer's  balance  as  it  ap- 
pears on  the  ledger  may  be  a  very  deceptive  measure 
ol  the  value  of  the  account. 

3.  Small  checking  accounts.— The  steady  increase 
in  the  number  of  small  current  accounts  is  becoming 
a  serious  problem  in  banking,  owing  to  the  difficulty 
and  expense  of  operating  them.     There  are  several 
classes  of  small  accounts,  some  of  them  desirable, 
others  neutral,  and  many  undesirable.    A  considera- 
tion of  the  origin  and  intention  of  these  small  accounts 
IS  of  interest.    Roughly  speaking,  they  may  be  di- 
vided into  eight  classes:  the  last  class.  No.  8,  however, 
IS  the  one  to  which  particular  reference  is  made,  owing 
to  the  per  item  cost  with  no  compensating  balance  to 
support  fixed  charges. 

XVl-CM 


MO 


BANKING  PRACTICE 


1.  A  balance  created  by  the  payment  of  notes  or  other 
items  collected  by  the  bank  for  a  customer.  These  accounts 
are  generally  closed  by  one  withdrawal. 

2.  Proceeds  of  discounts  credited.  These  accounts  are 
generally  inactive  and  the  balance  left  comparatively  small, 
a  few  dollars  as  a  rule. 

8.  Money  left  for  safe-keeping  and  generally  withdrawn 

in  one  amount. 

4.  Funds  deposited  from  time  to  time  to  meet  certam  pay- 
ments ;  "nactive  and  generally  withdrawn  in  one  amount. 

6.  Balances  of  subsidiary  business  accounts  of  large  cus- 
tomers, such  as  coupon  and  dividend  accounts,  pay  checl 
accounts,  etc.,  the  checks  for  which  would  otherwise  go  thri 
the  general  account ;  therefore  a  matter  of  bookkeeping  con 
venience  to  the  customer,  and  as  a  rule  a  convenience  to  th( 
bank.     Include  in  analysis  of  general  account. 

6.  Private  checking  accounts  of  partners,  managers  anc 
other  officers  of  a  company,  and  occasionally  their  wives 
These  accounts  are  generally  carried  willingly  by  the  banki 
as  a  matter  of  courtesy.  Such  accounts  frequently  havi 
good  balances  in  the  savings  department. 

7.  Seasonal  accounts.  The  balances  of  these  account 
duriug  the  greater  part  of  the  year  are  generally  small,  witl 
practically  no  entries,  and  represent  the  balance  left  ovei 
after  a  season's  operation  in  a  certain  class  of  business 
such  as  agriculture  or  lumbering.  These  classes  of  busi 
ness  as  a  rule  maintain  satisfactory  balances  during  th 
height  of  their  activity  and  are  carried  as  a  courtesy  durinj 
their  period  of  comparative  inaction.  •       .  • 

8.  Small  checking  accounts  with  a  maximum  of  entne 
and  minimum  of  balance. 

The  bank,  for  this  last  class  of  accounts,  practicall] 
acts  as  bookkeeper  and  saves  the  depositor  in  som 
instances  $5  or  more  per  month  in  that  connection 
Experience  has  shown  that  these  accomits  are  mor 
fruitful  of  trouble  and  risk  to  the  bank  than  any  othe 


BANK  COST  ACCOUNTING  8tl 

accounts,  and  once  a  mistake  is  made  the  loss  is  seldom 
recovered.    Forgeries,  raised  checks,  and  other  forms 
of  crmimal  financing  are  frequent.    "Eternal  viiri- 
lance  is  the  price  of  safety."    Beyond  the  personal 
equation  of  the  customer  and  his  good  opinion,  what- 
ever that  IS  worth,  there  is  little  or  no  value  in  these 
accounts.    The  balances  are  small  and  of  such  a  fluc- 
tuatmg  nature  that  practicaUy  100  per  cent  cash  re- 
serve has  to  be  carried  to  meet  theh-  requirements. 
Furthermore,  as  the  deposits  would  probably  show 
that  about  90  per  cent  of  the  amounts  consist  of  checks 
and  bills  redeemable  at  other  banks  in  the  city,  there 
IS  m  many  cases  a  real  overdraft  in  the  account,  pend- 
ing  the  clearing  of  these  items. 

The  entries  on  these  accounts,  credit  and  debit,  cost 
at  least  three  cents  each.  Accounts  of  this  character 
take  up  a  great  deal  more  of  the  time  of  the  manager 
and  staff  than  practicaUy  any  of  the  desirable  ac- 
counts. As  a  rule  checks  are  issjed  before  the 
deposit  is  brought  in,  and  frequently  it  is  necessary 
to  call  up  the  customer  by  telephone  in  order  to  pro- 
tect his  checks  from  protest. 

It  must  be  remembered,  however,  that  in  many 
smaU  branches  a  number  of  these  unprofitable  ac- 
counts can  be  carried  under  certain  conditions  with- 
out any  actual  money  loss  to  a  bank.  The  reason 
for  this  is  obvious.  A  small  branch,  especiaUy  if 
newly  estabhshed,  has  certain  fixed  charges  to  maintain 
"respective  of  the  business  done.  For  several  years 
after  opening,  it  has  men  and  machinery  to  spare 


fl 


822 


BANKING  PRACTICE 


to  handle  this  class  of  account  without  any  add'^^ional 
expense.  It  is  only  when  the  business  has  increased 
and  more  men  and  office  accommodations  are  required 
that  these  accounts  become  burdensome.  This  ex- 
plains why  some  banks  advertise  for  and  encourage 
small  accounts.  They  enable  the  manager  to  become 
acquainted  with  his  neighbors,  and  frequently  a  small 
account  may  later  turn  out  desirable  or  bring  desir- 
able connections. 

The  same  arguments  do  not,  however,  apply  to  a 
small  savings  bank  account.  Such  an  account  is  nol 
intended  to  be  checked  against.  It  should  have  prac- 
tically no  expense  except  the  cost  of  opening,  calcu- 
lating the  interest  and  holding  the  reserve. 

The  tendency  to  check  against  savings  bank  ac- 
counts is  to  be  deplored  for  many  reasons.  The  banks 
have  no  machinery  for  handling  these  checks.  The 
cost  amounts  to  about  six  cents  per  ntry,  as  practi- 
cally every  signatm-e  has  to  be  loc'  d  up  with  eacl] 
presentation,  the  pass-book  callet  for,  etc.  More- 
over, this  abuse  of  the  savings  bank  account  is  an  open 
door  for  forgeries  and  other  frauds. 

The  increasing  activity  in  the  savings  bank  business 
is  constantly  aiding  to  the  expenses  of  that  depart- 
ment, owing  to  the  number  of  checks  that  are  novi 
being  -sued  on  the  various  accounts  and  the  practical 
elimination  of  any  notice,  or  deduction  of  interest  in 
lieu  thereof.  No  bank  can  afford  to  pay  a  higher  rate 
than  three  per  cent  under  present  conditions.  In 
fact,  a  study  of  the  statements  of  the  various  banks 


BANK  COST  ACCOUNTING  sm 

fS^^^  graphically  demonstrates  this  fact.    See 
section  21,  page  114. 

4.  Branch  ea^penses.-A  service  which  the  Cana- 
dian banks  render  the  country,  and  which  is  usually 
but  poorly  appreciated,  is  the  branch  service.    It 
speaks  well  for  their  progressiveness  in  this  connec 
tion  when  the  number  of  branches  is  compared  with 
those  of  Great  Britain  or  elsewhere.    According  to 
the  Bankers    Magazine,  during  a  recent  five-year 
penod,  Canadian  branches  were  increased  fifty  per 
cent  while  in  Great  Britain  the  increase  was  only 
fifteen  per  cent.     Furthermore,  these  statistics  show 
that  Great  Britain  has  one  bank  for  every  5.116  in- 
habitants, while  Canada  has  one  for  every  2,847  peo- 
ple.   Thus,  according  to  population,  the  bank  offices 
m  Canada  are  nearly  double  those  of  Great  Britain 
It  must  be  remembered  that  the  Canadian  banks  open 
branches  under  a  grea.  deal  heavier  expense  and  more 
inconvenience  than  their  English  confreres,  and  a 
branch  is  more  likely  to  remain  an  expensive  burden 
m  Canada  for  a  longer  period  than  a  similar  branch 
m  the  old  country.     There  are  few  villages  in  Eng- 
land which  cannot  show  a  fair  proportion  of  affluent 
residents  either  living  in  the  village  or  occupying  the 
neighboring  country  houses,  whereas  in  Canada  a  new 
branch  generally  means  more  loans  than  deposits  with 
which  to  start.     Were  it  not  for  the  circulation  privi- 
leges the  expense  would  be  a  serious  deterrent  to  the 
practice  of  opening  up  branches,  especially  in  newly 
settled  localities. 


BU 


BANKING  PRACTICE 


It  has  been  argued  that  there  is  a  great  economy 
in  the  branch  system  thru  the  fact  that  there  is  only  one 
executive  for  a  large  number  of  branches  as  compared 
with  the  individual  executives  required  for  the  Ameri- 
can national  banks.    This  economy,  great  tho  it  is, 
is  partly  offset  by  the  increased  cost  of  operating 
branches,  owing  more  particularly  to  the  non-concen- 
tration of  the  clerical  work.    In  other  words,  a  teller 
or  ledger-keeper,  for  instance,  in  a  big  office  can  easily 
put  thru  four  or  five  times  more  work  than  he  would 
be  called  upon  to  do  in  a  smaller  office.    This  state- 
ment is  substantiated  by  figures  the  writer  obtained 
from  one  of  the  leading  American  banks  where  foi 
the  past  ten  years  the  average  number  of  men  pei 
million  dollars  deposited  has  held  steadily  at  aboul 
four  and  six-tenths,  whereas  Canadian  banks  averag< 
twelve  or  thirteen  men  per  million  dollars  of  deposit 
Very  interesting  statistics  concerning  the  businesi 
of  a  branch  can  be  derived  from  the  books.    A  pro 
gressive  record  of  all  useful  data  should  be  made  an( 
compared  either  annually  or  semi-annuaUy,  such  a 
total  turnover,  number  of  items  passing  thru  the  dif 
ferent  departments,  number  and  aggregate  salary  o 
men  employed,  amount  of  stationery  used,  averagi 
amount  of  deposits,  loans  for  the  year  and  other  in 
formation  of  similar  nature.     These  figures  are  gen 
erally  called  for  by  the  head  office,  but  in  any  cas 
their  comparison  with  previous  years  is  invaluable  t 
a  branch  manager  who  aims  to  keep  expenses  withii 
a  proper  ratio  to  the  business  transacted. 


BANK  COST  ACCOUNTING  j«5 

Ab  the  main  work  in  an  office  consists  in  handling 
the  loans  and  deposits,  a  simple  but  valuable  test  of 
this  ratio  IS  to  find  the  percentages  which  salaries  and 
expenses  bear  to  the  combined  total  of  the  average 
loans  and  deposits.  It  is  interesting  to  note  how 
sensitive  these  percentages  are.  It  is  possible  to  ac- 
count for  any  change  over  the  previous  year  or  half- 
year.  An  mo-ease,  for  instance,  in  the  expense  per- 
centage over  the  previous  year  would  probablv  be  due 
to  some  extraordinary  expenses  for  repairs  or  the 

1  *rl  T^'Tl '"  *^'  '^^^^  percentage  might 
show  that  the  staff  employed  was  getting  more  ex- 
pensive  than  the  business  warranted,  and  steps  should 
be  taken  to  exchange  for  lower  salaried  men  where 
possible. 

The  normal  tendency  of  both  percentages  is  con- 
stantly downward.  Every  upward  movement  should 
be  mquired  into  closely. 

5.  Inland  ea^change.—The  transfer  of  funds  be- 
tween banks,  or  from  one  branch  to  another,  is  a  seri- 
ous source  of  expense,  a  fact  which  is  frequently  over- 
looked by  the  banks  in  attempting  to  meet  cc  anp.i  Jtion 
and  the  demand  of  the  public  for  "par  faciJi  ps." 

Generally  speaking,  out  of  every  $100  deposited, 
over  ^90  consists  of  checks;  the  balance  consists  of 
bank  bills  and  legal  tenders,  the  species  is  negligible 
except  m  special  cases.  All  the  cost  of  the  special 
machmery  required  for  the  handling  of  this  vast  vol- 
ume of  checks  and  drafts,  for  their  tr^sfer  from 
bank  to  bank  in  the  same  city  or  in  outside  cities,  is 


^SSTi 


8X6 


BANKING  PRACTICE 


borne  by  the  banks.  Local  transfers  are  handled 
without  any  remuneration  and,  in  the  case  of  outside 
transactions,  at  a  charge  frequently  insufficient  to 
cover  the  actual  expense  involved.  True,  this  one 
feature  may  be  considered  but  a  small  part  of  a  bank's 
business.  It  is  usually  looked  upon  as  one  not  worth 
considering.  Yet,  in  acting  as  a  clearing  house  in 
this  connection,  the  banks  of  Canada  render  an  inesti- 
mable service  to  the  country,  at  a  cost  of  millions  of 
dollars  annually. 

The  average  amount  of  outstanding  items  held  over 
night  for  the  daily  local  clearings  of  the  Canadian 
banks  is  over  $70,000,000.  This  offsets  nearly  three- 
fourths  of  the  average  circulation  of  the  banks.  At 
six  per  cent  interest  it  represents  over  $4,000,000  an- 
nually. In  addition  to  local  clearings  there  is  a  much 
larger  niunber  of  items  in  transit  between  branches 
and  correspondents,  some  of  which  business  is  trans- 
acted at  a  loss. 

A  customer  of  a  Toronto  bank,  for  instance,  meets 
a  note  by  depositing  a  check  on  another  bank  in  Tor- 
onto; interest  stops  when  the  note  is  charged  up  to 
his  accoimt.  But  his  bank  does  not  receive  returns 
for  the  check  thru  the  clearing  until  the  following  day, 
a  loss  of  one  day's  interest.  If  the  check  had  been 
drawn  on  a  bank  in  Montreal  it  would  be  two,  or  in 
some  cases  three  days  (where  Sunday  intervenes) 
before  the  branch  at  Montreal  would  receive  clearing 
returns  for  the  item.  Even  if  the  check  were  only 
for  $100  the  loss  at  six  per  cent  would  amount  to 


BANK  COST  ACCOUNTING  SVT 

over  8%  cents.  Broadly  speaking,  a  day's  interest  at 
SIX  per  cent  is  equivalent  to  a  little  over  one  sixly- 
fourth  of  one  per  cent.  It  is  important  to  bear  in 
mind  that  a  check  or  sight  draft  outstanding  seven 
days  has  exhausted  the  equivalent  of  one-eighth  of 
one  per  cent  in  interest  alone. 

In  making  an  exchange  charge  to  a  customer  there 
are  three  elements  of  expense  to  be  considered  and  ad- 
justed to  meet  the  special  conditions  of  the  customer's 
business,  namely: 

1.  Postage  and  the  actual  cost  of  stationery,  clerical 
work  and  the  like 

2.  Intercut  for  the  time  outstanding » 

8.  (a)  If  a  branch  :  the  cost  of  the  ultimate  transfer 
ot  tunds  between  branches 

(b)  If  a  correspondent:  the  actual  commission 
charge 

4.  Profit  to  bank. 

The  first  three  clauses-expenses-are  incurred  in 
connection  with  every  transaction,  whether  with  a 
branch  or  correspondent  or  whether  put  thru  at  par 
or  not  It  IS  advisable  for  every  branch  to  test  out 
Its  exchange  charges  on  the  above  basis  and  see  if  the 
bank  IS  being  fully  remunerated  for  its  services.  As 
an  example,  we  shall  work  out  the  details  of  handling 
a  check  between  two  such  important  centers  as  Mont- 
real and  Toronto. 

co^™t"»h?^T*  ^<^'«»''«  2  Is   frequently  overlooked,  with  the 
consequent  absorption  of  the  profit  Into  expense. 


III 


1^^ 
I 


328  BANKING  PRACTICE 

Take  a  check  for  $100  cashed  in  Toronto: 

Office  and  postage  charges S         cents 

Interest  for  time  outstanding  (2  days)  at 

6%    8.J888  cents 

Total  cost 6.288  cents 

In  other  words,  a  check  for  $100  between  the  two 
branches  costs  approximately  5/4  cents. 

It  may,  of  course,  be  advanced  that  a  bank  is  not 
out  any  interest  when  the  check  is  between  two  cus- 
tomers of  the  bank  at  different  branches.  This  is 
true  when  the  account  of  the  drawer  is  in  funds  at 
the  time  the  check  is  cashed.  But,  theoretically,  the 
transaction  must  be  dealt  with  as  it  concerns  each 
customer  and  each  branch. 

No  merchant  would  sell  an  article  at  a  loss  to  one 
customer  simply  because  he  expected  to  make  a  sale  to 
another  customer  at  a  profit. 

There  is  a  tendency  on  the  part  of  some  customers 
to  expect,  almost  as  a  right,  all  sorts  of  par  privileges 
and  concessions  from  their  banks,  presuming  on  the 
fact  that  the  bank  would  be  sorry  to  lose  a  good  ac- 
count. This  is  a  peculiar  trait  in  men  who  are  other- 
wise honorable  and  free  from  petty  motives.  If  a  bank 
manager,  in  buying  goods  from  one  of  these  same 
customers,  tried  regularly  to  beat  down  the  price  or 
expected  to  get  all  small  wares  for  nothing  because 
they  did  not  cost  much,  what  would  the  merchant  say? 

With  the  change  in  the  time  only,  the  foregoing 
figures  would  apply  to  a  check  remitted  thru  any  other 
branch.     Should  the  item  be  sight  instead  of  a  check 


BANK  COST  ACCOUNTING  s^g 

the  interest  period  would  be  increased  to  seven  days 
or  /64  per  cent;  approximately  11  cents.  ' 

A  collection  sent  to  a  correspondent,  however,  has 
to  stand  a  double  charge  in  the  interest.  Take  a 
check  for,  say,  $100  sent  from  Toronto  to  Carleton 
riace,  the  cost  would  be  as  follows: 

Oflke  charges  and  postage o         _-_r 

Interest    for    time    outstanding,    CarlVtonl 

R..„,-tf ''*'''  '*°^/!*".'?'  ^  ^^^'  **  ^^^ h-575  cents 

Remittance  sent  to  Montreal,  2  days .  J 

Exchange  charged  on  check  by  correspond- 
ent at  Carleton  Place iq        ^^^^^ 

'^°***  '^^^^ 18.675  cents 

If  25  cents  was  collected  on  this  item,  the  bank 
would  have  earned  a  profit  of  six  cents;  which  is 
httle  enough.  Had  this  been  a  sight  item,  the  bank 
would  have  lost  three  cents  or  more.  Of  course, 
amounts  below  the  hundred  on  which  a  minimum  is 
charged  help  to  improve  the  average  profit. 

A  smaU  table  (Figure  57)  showing  the  approxi- 
mate  tmie  and  interest  cost  to  various  parts  of  the 
country,  to  and  from  a  branch,  wiU  greatly  assist  in 
these  calculations.  The  figures  above  are  based  on 
the  supposition  that  only  the  larger  items  received  in 
the  morning  mail  are  cleared  the  same  day;  the  smaller 
ones  being  cleared  the  foUowing  day.  It  is,  therefore, 
very  unportant  for  branches  to  remember  the  neces- 
sity of  using  the  mail  services  intelligently  with  a 
view  to  saving  interest;  in  other  words,  if  a  large 
Item  IS  cashed  during  the  day,  to  see  that  it  gets  out 


I      I 


AVERAGE  TIME  OCCUPIED  IN  CLEARING  BETWEEN 

BRANCHES 


DD 

M 

H 

n 
9i 

i 

or 

O 

1 

1 

5 

■< 

NoTA  Scotia 

2 
2 
2 
3 
3 
5 
6 
6 
7 

3 

1 
2 
3 
3 
6 
7 
7 
7 

o. 
2 
1 
2 
8 
5 
6 
6 
7 

3 
3 
3 
2 
2 
4 
6 
5 
7 

4 
4 
3 
2 
2 
4 
5 
5 
6 

6 
6 
6 
5 

4 
2 
8 
3 
5 

6 
6 
6 
6 
5 
3 
3 
8 
5 

6 
6 
6 
6 
6 
3 
4 
2 
4 

7 
7 
7 
7 
6 
5 
5 
3 
8 

2 

Princft  Cdw     lal. 

2 

2 

Quebec 

2 

Ontario    

3 

Manitoba 

« 

fi 

Alberta 

A 

Britiih  Columbia      

7 

1  day's  interest  at  6%  =  1/64,  approximately. 

Therefore,  the  cost  of  interest  (say)  between  points  in  Ontario  and 
Manitoba  is  4/64  =  1/16,  if  sent  to  a  correspondent  the  item  would  be 
8  days  outstanding,  or  8/64  =  14  of  1%  for  interest,  as  it  would  take  the 
same  time  to  clear  the  return  reiriittance. 


INTEREST  ON  $1,000 

Days 

3% 

4y,% 

6% 

Decimal 
Values  of 

64ths 

l/32nds 

1 

.0648 

.1283 

.1644 

.15626 

1 

•    •    •    • 

2 

.1096 

.2466 

.3288 

.3126 

2 

1/32 

S 

.1644 

.3699 

.4932 

.46876 

3 

.... 

4 

.2192 

.4932 

.6576 

.626 

4 

1/16 

5 

.2740 

.6164 

.8219 

.78125 

5 

•   •  •  •  • 

6 

.3288 

.7397 

.9863 

.93760 

6 

3/32 

7 

.3836 

.8630 

1.1607 

1.09375 

7 

1/10 

8 

.4384 

.9863 

1.3161 

1.260 

8 

1/8 

9 

.4932 

1.1086 

1.4796 

1.40626 

9 

. .  •  • 

10 

.6479 

1.2329 

1.6438 

1.6626 

10 

6/32 

11 

.6027 

1.3662 

1.8082 

1.71875 

11 

.... 

18 

.6675 

1.4795 

1.9726 

1.87600 

12 

8/16 

IS 

.7123 

1.6027 

2.1370 

2.03125 

13 

•   •  •   ■ 

14 

.7671 

1.7260 

2.3014 

2.18760 

14 

•   •   •  • 

16 

.8219 

1.8493 

2.4668 

2.34375 

15 

1/4 

FiocHE  67 
330 


2 
2 
2 
2 
3 
6 
6 
8 
7 

BANK  COST  ACCOUNTING  sgi 

by  ttie  first  mail  even  if  a  special  letter  is  necessary. 
Iho  in  the  above  examples  we  have  not  included 
any  charge  for  the  transmission  of  funds  on  the  indi- 
vidual  Item,  this  expense  must  eventually  be  met  in 
some  form  or  other  in  the  adjustment  of  balances 
between  branches,  either  by  remittance  of  legal  tender 
or  bank  notes,  etc.    Express  charges  run  from  30 
cents  to  three  or  four  dollars  per  one  thousand  doUars. 
The  above  facts  establish  conclusively  that  the  cash- 
ing of  checks  at  par  at  the  branches  is  a  constant 
source  of  loss  to  a  bank  and  that  outstanding  items  in 
the  course  of  collection  or  in  transit  from  a  more  seri- 
ous and  unavoidable  expense  for  which  a  bank  should 
be  compensated. 

6.  Cost  data.— The  loanable  value  of  the  balance 
maintained  must  be  determined  by  each  individual 
bank  for  itself  according  to  its  net  earnings.  It  can 
be  arrived  at  in  various  ways  but,  generally  speaking, 
it  averages  between  four  and  four  and  a  half  per 
cent.  ^ 

Two  cents  per  check  is  considered  a  low  cost  pei 
Item.  Mr.  F.  W.  Thomas  of  Toledo,  an  expert  in 
bankmg  cost  accounting,  places  the  cost  of  an  ordinary 
check  at  two  and  a  half  cents  while  he  computes  a 
savmgs  bank  check  at  six  and  a  half  cents.  Mr. 
Bordwell  of  San  Francisco,  figures  that  a  clearing 
house  check  costs  1.22  cents  and  an  out  of  town  item 
2.7  cents  for  bookkeeping  only.  A  customer's  check 
costs  8.18  cents,  or  2.87  cents  if  the  customer  supplies 
his  own  check  form.    A  Chicago  bank  makes  its  cal- 


3M 


BANKING  PRACTICE 


culations  at  1.516  cents  per  check,  but  this  figure  does 
not  include  anything  for  overhead  charges,  for  man- 
agement, check  blanks  and  other  incidental  expenses. 
It  is  simply  for  clerical  work,  rent,  light  and  heat. 
The  other  figures  are  over  all. 

The  English  banks  not  only  charge  the  customer 
for  postage,  check  books  and  the  Mke,  but  expect  a 
reasonable  balance  to  be  maintamed;  generally  a  min- 
imum of  about  £100  in  the  city  or  £50  in  a  country 

branch. 

In  arriving  at  the  actual  cost  per  item,  it  is  neces- 
sary to  include,  in  addition  to  the  cost  of  clerical  work, 
the  cost  of  the  supervision  of  the  manager  and  ac- 
countant, the  apportionment  of  the  rent,  stationery, 
light,  heat,  and  vault  and  safe  accommodation;  also 
an  apportionment  of  head  office  expenses.  This  in- 
volves extra  work,  but  once  a  basis  for  per  item  cost 
is  established  in  an  office,  it  will  serve  for  the  con- 
sideration of  all  accounts  for  the  year.  Even  if  the 
bank  considers  only  the  salaries  of  the  men  actually 
engaged  in  handling  checks  and  deposits— namely  the 
teller  and  ledger-keeper— the  cost  per  check  just 
under  this  one  expense,  will  be  found  surprising. 

It  is  seldom  realized  by  a  customer,  or  even  by 
the  manager  himself,  that  a  check  form  on  safety 
paper  costs  $2.50  per  thousand  or  one-fourth  cent  each. 

For  the  average  branch  in  Eastern  Canada  a  per 
item  cost  of  2  cents  per  check  is  accurate  enough 
for  general  purposes,  or  to  put  it  another  way,  a 
steady  average  balance  of  between  50  and  60  cents 


BANK  COST  ACCOUNTING  333 

per  check  issued  should  be  maintained.  An  ac- 
count, for  instance,  which  issues  one  thousand  checks 
per  annum  should  maintain  a  balance  thruout  the  year 
of  between  $500  and  $600  to  cover  the  out-of-pocket 
expenses  of  the  bank  in  operating  the  account. 

7.  An  account  andyzed.—ln  order  to  illustrate 
some  of  the  more  elementary  features  of  cost  account- 
ing, the  foUowing  brief  analysis  will  be  useful.  The 
account  shows  an  average  weekly  credit  balance  of 
$7,000  for  the  year,  average  amount  of  items  in  transit 
$5,800,  average  amount  of  checks  cashed  at  par  at 
other  branches  $600,  number  of  checks  issued  seven 
thousand. 

GROSS  EARNINGS 

Interest  on  the  average  balance  at  W'^%. 

$7,000 '[7   '  ^3jg 

Exchange  received  on  items  deposited  or  col- 

^«*=*^ 325 

$640    $640 

LESS  VALUE  OF  WORK  DONE 

Interest  value  of  items  in  transit  average 

$6,300  at  6% *.   $gg5 

Interest  on  checks  crossed  at  par  and  paid  by 
branches,  average  outstanding,  $600  at 
^%    30 

Collection  charged  paid  to  other  banks 78 

Office  charges  on  7,000  debits  to  the  account 

at  2  cents  each 140 

Total  cost $613     ^513 

This  leaves  a  net  profit  to  the  bank  of  $127. 


9M 


BANKING  PRACTICE 


Even  with  the  large  balance  of  $7,000  it  wiD 
noticed  that  there  is  constantly  outstanding  $5,9C 
consisting  of  $5,800  of  items  in  transit,  and  $600 
checks  paid  at  par  by  other  branches.    This  leaves  tl 
real  balance  practically  $1,100  instead  of  $7,000. 
is  well  to  remember  that  the  bank  must  base  its  hoi 
ings  of  cash  reserves  on  the  larger  or  book  balanc 
which  will  reduce  still  more  the  net  balance  of  $1,10 

The  rate  of  interest,  four  and  a  half  per  cent, 
based  on  a  net  earning  power  of  five  per  cent  less  t< 
per  cent  for  cash  reserve. 

The  "exchange  received"  is  self-explanatory,  bi 
attention  is  drawn  to  the  fact  that  the  schedule  « 
exchange  charges  is  evidently  insuflScient.  In  ma] 
ing  the  rate,  full  allowance  was  not  made  for  tl 
length  of  time  the  items  would  be  outstanding.  Tl 
total  cost  for  collection,  interest  and  conmiissions  wj 
$343,  or  $18  more  than  the  exchange  collected,  an 
were  it  not  for  the  free  balance  of  $7,000  the  accour 
would  be  operated  at  a  serious  loss. 

The  most  satisfactory  way  of  obtaining  the  averag 
amount  of  items  in  transit  is  to  multiply  each  item  b 
the  number  of  days  it  >\  as  outstanding,  and  divide  th 
total  amount  by  the  number  of  days  under  considers 
tion.  This  will  give  the  average  daiV  imount  oui 
standing. 

In  the  accounts  of  customers  who  have  the  privileg 
of  crossing  checks  payable  at  par  at  another  branch 
particular  attention  should  be  paid  to  the  date  suci 
checks  are  cashed  at  the  other  branch,  and  the  interes 


BANK  COST  ACCOUNTING  335 

during  the  time  taken  in  transit,  made  an  expense 
agamst  the  account.    The  correct  treatment  is  shown 
in  the  above  statement.    This  is  necessary  because 
the  amount  of  such  checks  in  transit  not  only  affects 
the  amount  of  the  credit  balance  but,  in  addition, 
some  customers  do  not  arrange  to  provide  funds  for 
their  checks  until  they  are  about  due  at  the  bank.    In 
many  cases  they  do  not  even  provide  the  funds  then, 
untU  their  attention  is  called  to  the  matter.    Par 
privileges  should  not  be  accorded  to  accounts  of  this 
nature.    They  should  be  granted  only  to  accounts 
which  keep  a  credit  balance  commensurate  with  the 
work  done,  in  addition  to  having  ample  funds  to 
cover  outstanding  checks. 

Altho  the  account  shows  a  profit,  it  is  not  a  normal 
one,  as  there  is  a  serious  weakness  shown  in  the  rates 
of  exchange  charged.  A  shght  drop  in  the  deposit 
balance  would  turn  the  profit  into  a  loss.  An  ex- 
amination of  the  cash  items  deposited  wiU  show  on 
what  pi)ints  the  rate  of  exchange  is  inadequate,  and 
an  adjustment  should  be  made  accordingly.  Condi- 
tions in  a  customer's  business  are  constantly  chang- 
ing. The  nature  of  the  items  deposited  varies 
accordingly.  An  exchange  rate  that  is  satisfactory 
one  year  might  not  be  so  the  next. 

8.  Method  of  analysis.— The  work  of  analyzing  an 
ordinary  account  is  not  very  onerous,  especially  if 
systematically  followed  out.  The  course  of  the  de- 
P^it  balances  is  the  main  information  required. 
Wholesale  and  other  accounts  depositing  a  larce  num- 

XVI-CW  ° 


886 


BANKING  PRACTICE 


H -i 


ber  of  cash  items  involve  more  work,  especially  if 
the  data  for  the  whole  year  is  required.  Usually, 
however,  the  transactions  for  a  month  are  sufficient 
for  all  general  purposes. 

The  amount  earned  on  an  account  depends  princi- 
pally on  the  value  of  the  credit  balances  maintained. 
For  purposes  of  analysis  the  minimum  weekly  credit 
balance  is  the  one  which  should  be  considered.  Any 
money  on  deposit  less  than  a  week  has  no  loanable 
value  to  a  bank  so  far  as  an  mdividual  account  is  con- 
cerned. It  may  be  contended  that  under  the  law  of 
averages,  artd  considering  the  accounts  as  a  whole, 
the  average  weekly  or  even  daily  balance  is  of  value, 
but  in  an  analysis  no  account  should  depend  for 
strength  in  any  ^articular  on  another  account.  For 
purposes  of  comparison,  however,  the  average  monthly 
balance  should  be  considered  in  the  general  sizing  up 
of  the  account. 

If  the  account  shows  debit  balances  during  the 
period,  the  exact  number  of  days  overdrawn  and  the 
amount  at  credit  should  be  shown. 

Debit  balances  do  not  enter  mto  the  value  of  a 
deposit  account.  The  net  discount  or  interest  earned 
thereon  is  considered  as  part  of  the  profits  accruing 
from  the  general  loanable  funds  of  the  bank,  and 
cannot,  therefore,  be  regarded  as  a  benefit  derived 
from  any  individual  account.  Furthermore,  in  the 
analysis,  credit  is  accorded  the  account  for  any  loan- 
able funds  supplied. 

The  average  debit  balance,  however,  is  of  value  for 


BANK  COST  ACCOUNTING 


837 


purposes  of  comparison,  and  can  be  easily  ascertained 
on  the  basis  of  the  interest  debited  to  the  account  dur- 
ing the  period. 

If  interest  is  aUowed  on  the  credit  balance  or  any 
part  of  it  the  amount  of  interest  credited  should  be 
taken  into  account  as  part  of  the  expenses.  Care 
should  be  taken  to  see  that  the  interest  credited  covers 
the  whole  period  under  analysis. 

9.  Exchange  received  on  items  deposited  and  col- 
lected.—Gross  earnings  are  derived  from  the  value 
of  the  credit  balance  and  from  the  exchange  received 
on  items  deposited  and  collected.  Profits  oi  t  special 
transactions,  such  as  letters  of  credit,  foreign  ex- 
change, circulation  and  the  like  should  be  shown 
separately. 

In  an  ordinary  deposit  account  there  are  compara- 
tively few  items  deposited  drawn  on  out-of-town 
pomts,  and  the  rates  received  for  these  are  generally 
remunerative.  However,  in  the  case  of  wholesale 
merchants  and  other  distributors  who  deposit  a  large 
number  of  cash  items,  the  rate  >f  exchange  charged  is 
generally  low  and  frequently  uaremunerative,  unless 
the  destination  and  interest  cost  of  the  items  has  been 
taken  into  consideration  in  making  the  rate. 

Therefore  the  first  data  to  examine  in  this  connec- 
tion is  the  schedule  of  rates  under  which  the  account 
IS  operated.  To  the  practised  eye  the  weak  points 
m  the  arrangement,  if  any,  will  at  once  become  appa- 
rent. 

It  would,  of  course,  be  impossible  to  consider  each 


888 


BANKING  PRACTICE 


item  individually.  The  best  method  is  to  divide  Can- 
ada into  provinces  or  sections.  The  figures  given 
for  each  province,  etc.,  should  be  multiplied  by  the 
average  number  of  days  which  items  remitted  to  each 
section  are  outstanding.  The  result  will  represent  the 
amount  of  items  in  transit  outstanding  on  the  basis 
of  one  day,  and  when  divided  by  the  number  of  days 
in  the  period  will  give  the  average  amount  outstand- 
ing. It  is  a  simple  matter  for  any  branch  to  make  a 
schedule  showing  the  average  time  between  the  de- 
posit of  an  item  and  the  receipt  of  the  relative  clear- 
ing returns  from  various  points  in  the  country. 

A  statement  should  be  made  of  checks  drawn  on 
banks  in  the  same  city,  the  returns  for  which  are  not 
received  until  after  clearing  the  following  day.  An 
account  could  easily  deposit  $50,000  of  local  checks 
and  have  only  $5,000  to  $10,000  balance  at  the  end 
of  the  day.  In  other  words,  the  bank  would  be  lend- 
ing $45,000  overnight  without  interest.  If  this  occurs 
daily,  as  it  does  to  a  great  extent,  it  is  a  serious  burden 
on  the  bank. 

In  allowing  for  the  time  an  item  is  outstanding,  it 
must  be  borne  in  mind  that  the  loss  of  interest  does 
not  cease  until  the  actual  clearing  returns  are  in  the 
hands  of  the  bank.  Items  sent  to  correspondents, 
therefore,  are  not  finally  disposed  of  until  the  relative 
settlement  checks  have  been  actually  cleared  at  Mont- 
real or  Toronto,  or  on  whatever  central  point  the 
draft  is  drawn. 

The  gross  amount  of  exchange  received,  less  the 


BANK  COST  ACCOUNTING 


sad 


correspondent's  commission  and  interest  \  alue  of  the 
time  in  transit,  will  show  the  net  profit  or  loss  on 
exchange.  An  account  should  also  receive  dit  for 
the  net  exchange  received  from  collection^,  and  dis- 
counts. Interest  is  not  an  expense  in  connection  with 
exchange  on  collections,  but  in  arriving  at  the  net 
exchange  on  discounts  the  time  occupied  in  remitting 
or  returning  the  items  should  be  taken  into  account. 
The  basis  of  rebate,  if  any,  in  connection  with  cash 
items  or  discounts  sh(  iiH  be  looked  into  carefully,  as 
this  is  a  fruitful  soiu  ce  of  loss. 

10.  Checks  paid  at  pm  at  other  brunches.— HeteT- 
ence  has  already  beeii  ina<ie  to  Ihe  loss  sometimes  en- 
tailed in  granting  this  pr.Mie»;e  In  the  case  of 
checks  cashed  at  par  by  another  l)ra!ich,  the  ledger- 
keeper  should  make,  in  the  ledger  account  opposite  the 
entry  of  the  check,  a  memorandum  showing  the  date 
of  encashment.  The  check  becomes  a  charge  again  i 
the  account  as  soon  as  it  is  paid  by  the  other  brat cit 
The  analysis  of  some  accounts  in  regard  to  items  ' 
transit  and  checks  paid  at  par  will  frequently  affow 
surprising  results  in  the  dissolving  of  apparently  sub- 
stantial balances. 

11.  General  remarks.— The  question  of  cost  ac- 
counting for  banks  offers  a  large  field  for  study  and 
investigation,  and  it  is  impossible  in  a  volume  of  this 
nature  to  deal  exhaustively  with  the  subject.  How- 
ever, the  broad  fundamentals  have  been  touched  upon 
in  the  hope  that  the  information  and  suggestions  given 
will  be  suflScient  to  arouse  the  interest  of  the  reader 


840 


BANKING  PRACTICE 


and  indrce  him  to  make  a  further  study  of  what  is 
an  intensely  interesting  subject.  Every  manager 
should  make  himself  thoroly  acquainted  with  the  costs 
and  expenses  at  his  own  branch  and  with  the  opera- 
tion of  eveiy  account,  in  order  that  he  may  find  out 
whether  the  tune  spent  by  himself  and  the  staff  in 
operating  each  accoimt  is  compensated  for  by  the 
balance  at  credit,  or  other  collateral  advantages. 

The  analysis  itself  is  purely  mechanical.  The  real 
test  is  to  decide  whether  an  adjustment  of  the  rates 
should  be  discussed  with  the  customer,  or  whether  the 
collateral  advantages  of  the  account  outweigh  any 
unsatisfactory  feature  disclosed  by  the  analysis. 
Business  men  as  a  rule  are  not  unreasonable  when  an 
issue  is  put  squarely  before  them.  Few  would  refuse 
to  make  some  adjustment  of  an  account  if  they  were 
shown  that  it  was  working  a  palpable  injustice  to 
the  bank.  The  tactful  m?^  a^gt  could  take  advantage 
of  a  favorable  opportunity  to  suggest  to  a  customer 
slight  changes  which  would  place  the  account  on  a 
more  satisfactory  basis.  Various  methods  are  avail- 
able; the  balance  might  be  increased,  the  exchange 
rate  adjusted  or,  in  the  case  of  a  small  checking 
account,  a  flat  rate  of  fifty  cents  or  one  dollar  per 
month  could  be  made. 

It  is  preferable  to  submit  the  account  to  a  rigid 
analysis  and  thus  allow  leeway  for  the  consideration 
of  collateral  benefits,  rather  than  to  make  a  less  ex- 
haustive analysis  and  run  the  risk  of  overlooking  some 
unfavorable  feature.    After  an  analysis  is  completed, 


BANK  COST  ACCOUNTING 


341 


consider  carefully  all  the  advantages  of  the  connec- 
tion. The  customer's  side  of  the  question  should  also 
be  impartially  considered ;  he  may  have  cause  for  com- 
plaint, and  analysis  is  invaluable  in  either  case. 
When  the  results  of  an  investigation  indicate  unsatis- 
factory conditions  it  is  generally  advisable,  unless  the 
unfavorable  feature  is  very  outstanding,  to  defer  any 
action  until  the  fact  has  been  confirmed  by  a  subse- 
quent analysis. 


REVIEW 

If  you  were  determining  whether  or  not  an  account  was  profit- 
able to  a  bank  what  factors  would  you  consider? 

Of  the  eight  classes  of  accounts  enumerated  which  are  desirable, 
which  are  neutral  and  which  are  undesirable? 

Why  is  it  a  bad  plan  to  check  against  saving  accounts  ? 

What  elements  of  expense  are  incurred  in  making  an  exchange 
charge  to  a  customer?     Give  an  illustration. 

Analyze  an  account  so  as  to  show  gross  earnings  and  the  ex- 
pense of  keeping  the  account. 

What  changes  would  you  suggest  if  an  account  had  proved 
unprofitable? 


INDEX 


AeeomiBodaUon  Paper, 

Objection*  to,  112;  DiifnUiny,  272; 
KUdi.   272-73;    Forgury,   273 
Aeeonnt,  AmOyala  of  a  Bank, 
lUnatration,       888-35;       Exchance 
charges,     884;     Crossing    checks. 
884;    Profit,    885;    Method,    835- 
86;    Credit    and    debit    balances, 
886-37;   Exchange  received,   337; 
Gross  earnings,  837;  Rate  sched- 
ules,   337;    Checks   in   same   city, 
838;     Branches,     339;     Net     ex- 
change and  interest,  389;  Obtain- 
ing   a    more    satisfactory    basis, 
840;  Rate  adjustments,  840;  Ad- 
vantages   considered,    841 
Aeeoantant  of  Branebaa,  149-50 
Aeeonntiiir,  Bank, 
Books,  156  et  seq.;  Loose-leaf,  159- 

60 
Set  Banks,  Head  Office 
Aeeonnts,  Bank, 

Small,    94;    Opening,    198;    Signa- 
tures, 199;  Pass  book,  199,  207- 
9;    Ledger,    199-200,    205;    Part- 
nership, 200-1;  Joint  stock  com- 
panies, 201;  Joint,  200;  Harried 
women,     201;      Quebec,      201-8; 
Charging  back,   208-5;   Indexing, 
205;     Loose-leaf,     205;     Deposit 
slip,      206-7;      Money      received 
after    hours,    207;    Fraud,    209- 
10;    Certification,   210-11  ;Checks, 
210;    "Kiting,"  210;   Overdrafts, 
211;    Savings   bank   ledger,    213- 
14;  Machine  statements,  214-15; 
Envelope    system,     215;     Inspec- 
tion,    812;     Analyzing,     317-19; 
Profits,    817;    Unprofitable,    318; 
Small   checking,    319-21;    Savins 
bank,  822 
Armjr  Bill  Act,  6-7 
Asssts,  Bank, 
Quick,   100;   Current  loans,    111   et 
»eq.;    Call   loans,   254 
Assignment, 
Form,   282;   Advances  on,  288;  De- 
arription  of  goods,  283-84 
Aislgnmenti,  AdTances  on, 

-^i"*™  '"■^•'   276-78;  Bank  Art, 
277;  Forms.  270;   Written  prom- 

343 


Aaiicnmeute — continued 

ise.  279-80  285;  Security.  280; 
Legal  assignments,  281-86;  Dec- 
laration, 286-89;  Use  of  money 
obtained,  288;  Note,  the.  289- 
92;  Questions,  292-98;  Examina- 
tion of  property,  293;  Margin, 
294;  "Current  season,"  801-2: 
Default,   302-3  »"*  *. 

See  Warehouse  Receipts,  Advances 
on, 

Attorney,  Power  of, 

How   issued,   249;   in   Quebec,   249- 
Overdrafts,        240-50;       Typical! 
250-51;    Termination,    252:    Mu- 
nicipal  authorities,   253 
Andlt,  The, 

Officer,  807;  Use,  807;  Cash  and 
securities,  308-9;  Ledgers,  808: 
Statements,   310;    Sundries,   810- 

Andltori,  Bank, 
Appointment,    28;    Duties,    28-29: 

Reports,    28-29 
See  Shareholders'  Audit 

Bank,  A, 
Definition,  12 ;  White,  Horace,  12 

Bank  Aeeonnts,  See  Accounts,  Bank 

Bank  Act  of  1913, 

Copies,  17;  Leading  features,  17; 
Changes,  18;  Shareholders'  au- 
dit, 18-10,  28-29;  Reserves,  gold. 
18.  81-32;  Abstract.  20-21; 
Banks  under,  21,  Incorporation, 
22;  Organisation,  22-23;  Cer- 
tificates, 28-24;  Treasury  Board, 
23,  34-86,  45;  Dividends,  30; 
Reserve,  cash,  30-31;  Note  Is- 
sues, 31;  Redemption  fund,  33; 
Suspension  of  payment,  33 ;  Wind- 
ing-up, 34;  Powers  of  a  bank, 
86-37;  Loans,  37-39;  Interest 
and  exchanges.  89;  Amslgsma- 
tion,  40-41;  Statements,  41  et 
seq;  Dissolution.  44;  Suspen- 
sion, 44-45;  Canadian  Bankers' 
Association.  45;  Penalties.  46- 
46;  Amendment,  46-47;  War 
European,   46-47;   Regulation   for 


844 


INi»x.X 


B«nk  Act — Motinned 

not*  U«Be.  63-54;  Emergency 
carrency.  •i;  Br»nche«,  69;  Du- 
ties of  MveutWea,  129  et  Mq.; 
AdTkncM  on  Msigtwns'nt*  •"»* 
wsrahonae  receipt*,  37^-294;  De- 
lemlt,  302-8 
See  Hote  Iisues 


D»vld   Herum.   218;   Making  loMie, 
218  et  eeq. 
Bank  Oeet  Acconatlng,    See  Ooit  Ac- 

coanting.    Bank 
BaaUng  Syitom, 

History  of  Canadian  Evo'-ution,  3; 
White,  Horace.  8;  Four  periods, 
4;  New  France.  4-5;  British 
occupancy,  6-6;  Army  bill,  7; 
Provincial  banking,  6-7;  Bank  of 
Montreal,  7;  Independent  ven- 
tures, 7;  Ragulation  by  Britain. 
7;  National  system,  8-9;  British 
xTortb  America  Act,  8;  Dominion 
General  Bank  Act,  9;  Walker. 
Sir  Edmund,  10-11 
Bankers'  Magailna,  823 
Banka,   Canadian,   ' 

Bank  Act,  12;  Functions,  12;  Com- 
mercial,    12-13;     Branches,     13; 
National   character,    13;    Savings, 
13-14;    Trust    and    loan    compa- 
nies,    14-16;     Supervision,     19- 
20;    Incorporation   and   organisa- 
tion,   22-23;    Capital    stock,    23, 
25-27;    Directors,    23-25;    Treas- 
ury Board,  23;  By-laws.  24;  Cer- 
tificates,    24;      Subscriptions     to 
stock,   26;   Transfer.   26-27;   An- 
nual   statements,    27-28,    41-42; 
Collateral,      87;      Holdings,      37; 
Leans,  37;  Machine  receipts,  37- 
88;    Interest    and    exchange,    89; 
Deposits,   40;   Amalgamation,   41; 
Dissolution,   44;    Suspension,    44- 
45;    European  war,   46-47;    Bills 
of    Exchange    Act,    47-48;    Gold 
holdings    In    1918.    51-62;    Out- 
standing  circulation.   65;    Protec- 
tion   of    noteholders,    55-56;     In 
panic,    78-81;    Competition,    80; 
Advantages,       Johnson,       Joseph 
French,     82-83;     European    war, 
88-88;   Profits,   94-96;   One  man. 
one    bank,     102;     Quick    assets, 
109;    Real    estate    and    premises, 
114.    121;    Liabilities.    123;    Di- 
rectors,    127;     Executives,     127; 
President,      127;      Genpral     man- 
ager,   128-30;    Head    offirn,    129- 
30;  Branch  superintendpnts,  1  SC- 
SI;   Inspection,     132-33;     Secro- 


f'flT'**"!      I  llllillllll^ll 

tary,  133:  Claef  aeeosntant, 
184;  Records,  135  et  seq.;  Reli- 
ance on  branch  managers,  147- 
48;  Accounting,  166-56;  Saf'- 
guarding  loans  245  et  seq. 
8t*  European  War,  Statement,  An- 
alysis of  Bank 
Bllla    and    Acconnta    BecetraUa,    In 

Borrowers'    statements,    236 
BlUa  of  Exchange  Act,  47-49.  269 
"Bin*  Books,"   192 
Baokkeaplag       In       BraaehM,       8u 

Branches,   Records  of 
Borrowar,  tba, 

Branch   system  and,   73;   Establish- 
ing credit,  75-78;  PacU  to  know 
al-  'Ut,  219  et  seq.;  Obtaining  net 
worth,  223;   Importance  of  state- 
ment,   226-29;    Credit    standing, 
et   seq. 
BradatTMt'a  Jonmal,  221-23 
Branch  Banking,  Economic  Value,  13 
Branch  Managers, 

Reliance    on,    147;    Duties    and   re- 
sponsibilities,       147-48;        Dally 
work,    147-48 
Branch  System,  the. 

Utility,  66;  Bank  Act,  69;  Illus- 
tration, 69-70;  Circulation,  70- 
72;  Interdependence,  70;  Open- 
ing new,  70-71;  Number.  71; 
Scotland  and  England.  71;  Bor- 
rowers. 72  et  seq.;  Distribution 
loanable  funds.  72;  Line  of 
credit.  75-76;  Customers.  76; 
Panics.  78-81;  Depositors,  79- 
80;  Competition,  80;  Unison, 
80-81;  Personnel,  81;  European 
war,  83-88;  Inspection,  806-7; 
Expenses  and  economies,  823-25; 
Exchange  costs,  825-88 
Branches,  Becords  of. 

Clearing  statements,  187-88,  141, 
177-79;  Returns  to  head  office, 
141;  Financial  statements.  141- 
42;  Cash  book.  155-56,  160-65; 
Books,  156-59;  Loose-leaf,  150- 
60,  163;  Discount  register,  164; 
Blotter,  166;  Loans,  164;  Trade 
bills  diary,  169;  Draft  register, 
170-71;  Check  lists,  171-73; 
Cash  Items,  173-75;  Remittance 
books,  175-77;  Head  office,  181- 
83;  Teller's  records,  183-84; 
Ledgers,  184  et  seq.;  DepoBits. 
187;  Savings  banks,  189;  Liabil- 
ity ledgers,  190-92;  "Blue- 
books,"  192;  Collection  registpr, 
192-94;  Collateral,  194;  State- 
ment    to     government,     194-95; 


INDEX 


S^ 


Braneha;.  —continued 

Ball  nee  book,  196;  Diierepancies, 
196;    Overdrmfto,   196 

BnnclMB,  Staff  of. 

Superintendent.  130;  Inspector, 
131-83;  Managers,  147-49;  At- 
tracting deposits,  148;  Accou.:t- 
ant.  149-50;  Teller.  150-51; 
Ledger-keeper,  151-52;  Collection 
clerk,  152;  Discount  clerk,  163; 
Junior,   153-54 

Brltlsli  Oolonlea,  Note  Issue  in,  32 

BriUsli  Nortk  America  Act,  8 

Britlah  Begnlatloii  of  OaiudUn  Bank- 
ing,  6-8 

Baslnaaa  Oondltiona,   Monthly  Report 
on,   148-45 

BnsiuMa  Fallnres, 

Reasons,    221-22;    Lack   of   capital, 
222;    Incompetence.    223 


Call  Loans, 

In  Bank  statement,  101-08;  Defini- 
tion, 101-02;  Interest.  102;  Se- 
curity, 102,  255;  In  Kew  York 
and  London,  108-04;  Walker,  Sir 
Edmund.  106-08;  Bank  aaaet. 
254,  Margin,  254;  Form,  255; 
Rec'irds,  256 
Oaaadlaii    BarJura'    ABsociatlon,    20, 

44— 4i< 
Cannon,  Jamai  O.,  224,  225-28 
Capital,  Lack  of  business,  222 
Ci«ltal  Stock, 

Organiiation,  22-28;  Increase  or 
decrease,  25-26;  Treasury  Board. 
25;  Calls.  26;  Personal  property. 
26;  Subscriptions,  26;  Transfer, 
26-27;  Trusts,  27 
Can  Bo<^ 

Principal  record,  153;  Contents, 
J60-61;  Debit  and  credit  entries, 
161-62;  Writing-up,  162;  Sup- 
plempntary,  168 
Certification  <rf  Oliacks,  210-11 
Certification  of  Caatomers'  Books. 
208-09  ' 

Cbecks, 

Of  other  banks,  100;  Bank  stete- 
ment,  101;  Accommodation.  210; 
Certification.  210-11;  "Kiting." 
210;  Cashing.  211;  Overdrafts. 
211;  Forged  or  raised.  211;  Iden- 
tification. 211;  Customer  unable 
to  write.  219;  Cost.  330-31; 
CietSbing,  834 
Circtiktlon,    Records.    139-40 

See  Note  Issues 
Olrcnlatlon  Bwlamptlon  Funds,  88.  65 
vloanng  Stat«maat»   177-88 


OoUataral,  Register,  294 

See    Security 

Collections, 

Clerk.   152-53;  Register,  192-94 

Conunarclal  Banks,  12-13 

Competition,   Excessive,   316 

CorporaUons,  256-59 

Coat  Accounting,  Bank, 

Necessity  for,  315;  In  United 
States,  315;  Excessive  competi- 
tion, 316;  New  class  of  business, 
316;  Principles,  317;  Profits. 
317;  Analyzing  accounts.  318  et 
seq.;  Unprofitable.  818-22;  Sav- 
ings bank.  322;  Branches  ex- 
penses and  economies.  323-24; 
Elementary  features.  833;  Analy- 
sis of  an  account.  334  et  seq.;  In- 
land exchange.  325-31;  Cashing 
checks.  330-33;  Costs.  331-33 
Ondlt, 

Principles,  15;  Trust  and  loan  com- 
panies, 15-16;  Establishing,  75- 
78;  War,  87-88;  Definition,  219; 
Facta  to  know  about  borrower, 
219  et  seq.;  Business  failures, 
221-23;  Borrowers'  statement, 
225-27;  Cannon.  James  G..  227- 
28;  Kules.  227-28;  Professional 
men,  262;  Farmers,  264;  Retail 
merchants.  265-66 ;  Wholesalers 
and  manufacturers.  265 ;  Good  col- 
lateral. 269-71 ;  Accommodation 
paper.  273;  Renewal  notes,  278; 
Overdrafts,    274 

Credit  Men's  Association,  224 

Credit  Money, 

New   France.    5;    Hamiiton,    Aleran- 
der,    5 
Crop  Movements,  Currency  for,  60 
Currency,    Emergency 

See    Emergency    Currency 
Cnrrent  Loans, 

Advances     to     customers,      111-12; 
Classes,       ill;       Accommodation, 
112:    Leroy-Beauliflu,    113 
"Current  Season"  Loans,  soi  et  seq 
Customers, 

Position  in  Canada  and  United 
States.  76-77;  Credit,  77-78; 
Advances  to.  111-12;  In  inspec- 
tion.   312-14 

Declaration,   the. 

Importance,  287 ;  Prior  righta,  287; 
Security,   287 
Demand    Deposits,    94-96 
Depositor, 

Security  of,  79;  Reserve  fund,  121- 
28 


d46 


INDEX 


'^tSjSition.  89-40:  BMk  •turaent 
M:  Time.  93;  Difflcnlties.  92-98; 

tanks,  93;  Demand.  94-96 
Abuse  of  checking  prWUege.  94 . 
BinsU  Mcounts.  94;  P«^*»'  ^: 
H..  95;  Outside  of  Oanads.  96. 
With  foreign  banks.  101;  At- 
tracting. 147-48:  S'iPPj'""'"?''/ 
eash  book.  162-68;  Ledger.  168. 
199-200;  Branches,  ledgers,  io<- 
88;  Responsibility  for.  198;  Open- 
tog.  199;  Signatures,  199;  Blip. 
206-07 
8»e  Acoourts,  Bank 

"*SS°otatment.  22;  Proyi.ion.  for. 
24;  General  powers.  25;  Annu^ 
statements.  27-28;  ^.Superrision 
by,  127;  Qnaliflcatlons,  128, 
Loans,  129 

Dlfconnt  Olark.   153 

Strldands,  Metliod  of  payment.  80 

2>oiiitolon  Notos  Act,  50 

Dominion  Notes,  ,^  ,-, . 

•^1   tender."    60;    Act.    50-51 
Amount.  51;  Gold  reserve.  61-52, 
Redemption,  61;  Bank  statement, 
99-100  ^  „    ,_ 

]>mib«r,   "Economic  Essays,      67 

BUstleitT  of  the  Note  !»«•. 

Value.    66-57;    Dunbar.    57;     Sea- 
sonal   fluctuations,    57 
Bmargency  Currency, 

European     war,     46;     Crop     move- 
ments, 60.  64 
Errors  In  Bookkeeptog,  196 

^TnXr'unk.  and,  46;  Elasticity 
of  issue,  83-88;  No  moratorium. 
84;  Preceding  year,  85;  Loans. 
85:  Trade  balance,  85-86;  ■White. 
Sir  Thomas.  85-86:  Banks  in 
1016.  86-87;  Increased  deposits, 
87:  Credit  to  Britain.  88 
Exehango,  Inland,  ^  ^  ^     a 

Source  of  expense.  825;  Outstand- 
ing items.  826;  Between  branches, 
827  et  seq.;  Costs  and  profits, 
327;  Time  and  toterest  cost. 
329-^31 ;  Cost  data,  831-88 


7allarM,   Business 

Bee  Business   Failures 

*'^^'' loans.  74-75.  263;  Creation 
of  liquid  assets,  263;  Limit  on 
loans,   264;   Security,   265 


nnandal  Tlmas,  109 

'^ri;d*o7'banklng.  4-5;  Settlement 
by.  4-6;  Credit  money,  5;  Ham- 
iltin,  Alexander.  5         „„„  ,„ 

muds.   Guarding  agatost,   209-10 

"Ftm  Banking  Act,"  7 


^S  little  use.  50;  Amount  to  banks 

In   1918,   61 
Qold,  R«8«rwt  of, 

teeatlon.    18;    CIe»t"»i  »!;?„*•, ",!: 

67.   109;  Trustees,  82;  Dominion 

notes.  51-52;  In  bank  sUtement, 

99-100 
OoTamment,  the,      ,     _     ..    --oa 
Supervision.   19-20;   Funds,  96-98 

Financial  statements  to,  194 
Onaranta*  Bond*  ai  Security,  246-4 

Bagnot  Oaorga,  866-87 

Hamilton,  Alaxaadar,  5 

Hamm,  David.  218 

Baad  Ofllca,  the. 

Executives.  130  et  seq.;  Bookkeet 
tog.  135  et  seq.:  Ledgers.  135 
87;  Statistical  books.  137;  Stoc 
transfer  books.  137;  Branch  cleaj 
ing  statements.  137-88.  141 
Shareholders'  ledger,  188;  Circ, 
latlon.  139-40:  Dividends,  13S 
Unissued  notes.  139-40;  Retun 
by  branches.  141;  Financial  stat 
ments.  141-42;  Discounts.  14. 
Balance  sheet.  143;  Business  r 
ports.  143-45;  Overdue  bids,  14 
Routine,  145-46;  Branch  entrit 
181-83;  Loans  submitted  to,  24 

46 
Bypothecatlon    of    OolUtwral    Not( 

270-72 


Identification,  212-13 
Incorporation.  Joint  Stock  Oompani 

256-57  _     . 

InUnd   Exchange,    See   Exchange, 

Inspection  of  Banks,  132-33 

Inspection,  Internal,  . ,   .     ,, 

Branches,  306-07;  Two  ktods.  3 

Training      of      inspector,      ^ 

Audit,    308-11;    LUbility   reti 

Inspector.  Chief,  132-33 
Insurance.     Necessity    for    Oustc. 
235-36 


INDEX 


847 


XBttnit,  Bat*  of. 

Time  deposit,   98;    Call  loans,    103, 
105;   On   deposits,   118-19 


"Kttinc"  Oheclu.  210 


Johnson,  Joseph  Frencb,  82-83 

Joint  Stock  OompMilas, 

Definition,  266;  Loans  to,  256  et 
seq. ;  Incorporation,  237;  Open- 
ing account,  257;  Obtaining  in- 
formation concerning,  257;  Offi- 
cers, 257;  Guarantee  by  directors, 
259-60 


Lodgar-KMpor,  151-52,  198,  210 

Lodgari,  Bank, 
Head  office,  135-36;  Branches.  155- 
56,  184-87;  Deposits,  163;  Sav- 
ings bank,  189,  213-14;  General 
liability,  190;  Entries,  199,  205; 
Audit.  309 

Laroy-BoilMn,  113 

UablUtlM,  Bank, 

In  statpment,   98-99;    123;   Ledger, 
190-92;    Inspection,    311-12 

I«anB,  Bank, 

Ppovisions  for.  37-39;  Security,  87- 
38,  246  et  seq. ;  Warehouse  re- 
ceipts, 37-39;  Interest  rates.  89; 
Branches,  72;  Fluctuation,  72;  In- 
crease in,  73;  Regular  ru«>tomers, 
73;  Foundation  for,  74;  Out- 
brealc  of  European  war,  85;  Call, 
101-08;  Current,  110-13;  Super- 
vision by  directors,  128-29; 
Branch  managers  nnd,  131; 
Classes  of,  164;  Reducing  loss, 
218;  Poor  and  good,  219;  Qualifi- 
cations of  borrower,  219;  Rules, 
220,  227-23;  Business  failures, 
321-23;  Bradstreets.  222-23;  Net 
worth  of  borrower,  223-24;  Can- 
non, James  O.,  224n,  225-28; 
Canadian  Credit  Men's  Associa- 
tion, 224n;  Borrowe.-c'  state- 
ments, 225-27;  Credit  standing 
of  borrower,  240-42;  Submission 
to  head  office,  242;  Guarantee 
bonds,  246;  Customers'  wills, 
247;  Safeguarding  bank,  247-48; 
Power  of  attorney,  249  et  seq.; 
Municipal  authorities,  252-53 ;  On 
assignments,  276  et  seq.;  On 
warehouse  receipts,  295  et  seq.; 
"Current  season,"  301 
^««  Assignments,  Warehouse  Re- 
.eeipta,  etc. 


Loam,  Olautflcation  of. 

Call  loans.  101-08,  254-56;  Joint 
stock  companies,  255-60;  Munici- 
palities, 260-62;  Professional 
men,  262;  Farmers,  263-65;  Re- 
tail merchants,  265;  Manufac- 
turers and  wholesalers.  266-68; 
Hague,  George,  266-68;  Notes  as 
collateral,  268-69;  Bills  of  Ex- 
change Act,  269;  Security,  269; 
Hypothecation  of  notes,  270; 
Rules  for  accommodation  paper, 
272-73;  Renewed  paper,  273;  Ob- 
jections to  overdrafts,  274 

Loos*-leaf    Acconntlnf,     159-60,    163, 
187.    205 

Lnmborlng  Indnstrr,  and  Noto  lianas, 
63 


MkchlnoB,     Keeping     itatementa     by, 
214-15 

ICanagws, 

Must  study.  81;  Ability  in  makias 
good  loans,  218-19;  Decision, 
242;  Application  for  loan,  243- 
45;  Audit,  310;  Must  know  cost*, 
346 

ICannfactnrers  and  Wholasalars, 

Bulk  of  bank  loana  to,  266-68; 
Hague,  George,  266-67 

Married  Women, 

Bank  accounts  of,  201;  In  Quebee, 
201,  203;  Husband's  anthorisa- 
tion,  202;  Indorsements,  203 

Marchandlae, 

Security  for  loans.  74;  Analysis  of, 
234-36;    Insurance,    235 

Minister  of  Finance, 

Report  to,  29;  Emergency  circula- 
tion, 31-32;  Deposits  with,  32- 
33;  Suspension  of  payment,  3.T; 
Monthly  nnd  annual  statement  to, 
41—44;    DiRsolution    of    banks,    44 

Monetary  System,  Canadian, 

Elements,  SO;  Dominion  notes,  50— 
53 

Montreal,   Bank  of.   6 

Mortgages,     Liability     in     Borrowers' 
Statements,   239 

MnnicipaUtles,  Loans  to,  252.  260-62 


Now  France^  See  Prance,  New 

Now  York, 

Call  loans,  104;  Canadian  money  in, 
104—05:  International  money  mar- 
ket,   105 

Note,  the,  Required  for  advances,  289- 
92 

Not«)wUar,  Frotoetion  of  the,  65-56 


348 


INDEX 


Hot*  Xmum, 

Bank  Act,  80-81;  Crop  moviiiK,  81, 
60;  Intereit,  81;  Emerreney,  81, 
64;  In  British  coloniei,  82; 
Fledge  prohibited,  82;  Deposit 
with  Minister  of  Finance.  32-33; 
Redemption  fund,  38;  Saipeniion 
of  payment,  88-35;  Counterfeit, 
85;  Signing,  86;  Amount  in  cirru- 
lation,  1918,  62;  Value,  62;  Daily 
redemption,  64,  56;  Circulation 
Redemption  Fund,  65;  Failed 
banks,  65;  Elasticity,  56  et  seq.; 
Dunbar,  57;  Changes  in  circula- 
tion, 68  et  seq.;  Monthly  fluctua- 
tions, 59-60;  Lumber  industry, 
63;  Ci'.itral  gold  reserve,  66-66; 
Advantages,  66;  Lost  or  de- 
strnyed,  67;  Branches.  68  et  seq.; 
Panics,  78-80;  Reciprocal  pay- 
ments, 82;  Johnson.  Joseph 
French.  82-83;  European  war, 
84;  Bank  statement,  98;  Carried 
in  tills.  139-40 
See  Branch  System 

HotM,  Dominion,  See  Dominion  Notes 

OTordnft, 

Register.  196;  Allowing,  211,  249; 
Objections,  274;  Savings  account, 
275 

Pulca, 

Canadian  banks  in  time  of.  7R-R1 ; 
1907.  80,  106;  Walker,  Sir  Ed- 
mund.  106-08 

Paxtnerahlp, 

Accounts.  200-01 ;  Non-trading, 
200;  Joint  stock  companies  and, 
201 

Pm>  Book,  CiiEtomars', 

Provisions  for,  199;  Teller  dops  not 
make  entries,  207;  Writing  up. 
207;  Customers'  certification, 
208-09;  Duplicate.  214;  Machine 
sUtements,    214-15 

"Porcentage  Bank,"  120-21 

Postal  Savings  Bank,  13 

Pownall,  Ooorge,  H.,  95 

ProfMsional  Men,  Loans  to.  262 

Profit  and  Loss  Statement,  114-15 

Profits,  Bank, 

Net,  116  et  seq.;  "Percentage 
bank."  120-21;  Gross.  122; 
Earlier,   316;   Accounts,  317 

Provincial  Banking,  See  Banking,  His- 
tory of  Canar'.ian 

"Provincial  Note  Act,"    7 

QnolMC,  Province  of, 

Sfarried  women,   201-03;   Stuart  v. 


Quaboc — continued 

Bank  of  Montreal,  203;  Power  d 
attorney,   249 

Real  Batata  and  Fixtures, 

As  security,  74;  Holdings  by  banks, 
114;   Borrowers'   statement,  237- 
38 
Records,  Bank, 

Head  oftire,   135  et  seq.;   Branches. 
l.'>5  et  seq. 
Redemption  of  Notes, 

Circulation   Fund,    83;    At  par,    34; 
Dominion  notes  in   payment,   34- 
86;  Daily,  64,  66 
Reserves, 

Cash,  30;  Central  gold,  r.5-67,  109; 
Trustees,    66;    In    United    Stntos 
and    Canada,     108;     Fund,     121- 
23 
See  Gold  Reserve 
Retail  Merchants,  Loans  to,  266 

Savlngi  Banks, 

Functions,  13;  Government  and,  13- 
14;  Postal,  13;  Interest  rates 
14;  Deposits,  93;  Ledger,  180, 
213-14;  Duplicate  pass  books, 
214;  Small  accounts,  322;  Check 
ing  against,  322 
Seasonal  Fluctuations,  67-58 
Security,  (or  Loans, 

Real  estate,  74;  in  Bank  statement. 
101;  Call  loans,  102.  254-5(;: 
Guarantee  bonds  dangerous,  24ri- 
47;  Customers'  wills,  247-4«; 
Guarantee  by  corporation  direct- 
ors, 259-60;  Farmers'  loans,  2<')'); 
Collateral  notes,  268-69;  Accora 
modation  paper,  272-73 

See      Assignments,      Advances      on. 
Warehouse  Receipts,  Advances  on 
Shareholders, 

Regulations     foi,     2r- ;     Vote,     25; 
Double  liability,   45 ;    Supervision, 
45-46;   Ledgers,   188-89 
Shareholders'  Audit, 

New  features  of  Bank  Act,  18; 
Methods,  19;  Supervision  by  gov- 
ernment, 19-20;  Provisions  in 
Bank  Act,  28-29:  Duties  of  audit- 
ors, 29;  Reports  to  Minister  of 
Finance,  29 
Statement,  AnalTsla  of  a  Bank, 

Bank  Act,  89;  Typical.  90;  Under- 
standing, 91 ;  Assets  and  liabil- 
ities. 91 ;  Intention.  91 ;  Impor- 
tance. 92;  Time  deposits,  92-9.3; 
Savings  banks,  93 ;  Demsnd  de- 
posits, 94-96;  Pownall,  G.  H.,  95; 
Due   tp   banks,    98;    Government 


INDEX 


849 


SUtaaant,  Bank — eontinned 

funds,     96-98;     Circulation,     98; 
Capital    and    reserve.    99;    Specie 
and     Dominion     notes,     99-100; 
Notes  and  checks  of  other  banks, 
lOO-Ol;     Deposits     with     foreign 
banks,   101;  Securities,  101;  Call 
Loans,  102-08;  Beserves,  108-10; 
Quick      assets,      109;      Financial 
Time;     109-10;     Current     loans, 
110-18;    Advances    to    customers, 
111-12;    Overdue  debts,    113-14; 
Real  estate,  114,  121;  Profit  and 
loss,    114-15;    Net    profits,    116- 
17;  Interest  on  deposits,  118-19; 
"Percentage  bank,"  120-21;  Re- 
serve Fund,  121-23;  Gross  profits, 
122;  Liabilities,  123 
Statemmta,  Borrowtrs' 
Importance,  226  et  seq.;  Form,  228- 
29     Jash  on  hand,  229;  Typical, 
230-32;      Merchandise,      234-35; 
Raw  materials,  285;  Bills  and  ac- 
counts  receivable,    236;    Real   es- 
tate, machinery,  and  fixtures,  236- 
38;    Current    liabilities,    238-39; 
Compared    with    books    of    bank, 
239;    Life    insurance,    etc.,    239; 
Mortgages,   239;   Sales  to  branch 
houses,  240;   Regular,  242 
Statemonta,  Financial,  to  government, 

194 
Stuart  T.  Bank  of  Montreal,  203 
Sabttttntlon    of    Oooda    aa    Security, 

297-800 
Suspension  of  Banka,  44-45 
Suspension  of  Payment  of  Notes. 
Interest,   33;   Redemption  Fund,   38 


TaUar,  the. 

Duties  and  responsibilities,  150-51; 
Records.  183-84;  Customers'  pass 
books.  207-09;  Powers  of  ob- 
servation, 210;  Cashing  cheeks, 
211;    Overdrafts.   211 

Time  Oeposlta,   92-93 

Trade  Paper,  Discounting,  78 

Treaanry  Board, 

Bank  Act  of  1918,  23;  Functions, 
23n;  Capital  Stock,  25;  Winding- 
up  a  bank,  34;  Note  payment.  35; 
Supervision,    45-46 

Tmst  and  Loaii  Companies, 

In  banking  Held,  15;  Dangers  of, 
15;  Demand  deposits,  15-16; 
Credit  principles,   16 

TTntted  Stetaa, 

Loans  in,  76-77;  Panic  of  1907,  80, 
106;  Legal  reserves,  108;  Cost 
accounting,   815 

Walker,   Sir  Bdmnnd.   10-11,   i06-oa 
Warehonse  Becelpts, 

Advances   on,    as   collateral,    37-39; 

Rules,  294;  To  whom  made,  295; 

Definition,  297;  Substitution,  297- 

300 
War  of  1812, 

Canadian    banking.    6;    Army    Bill 

Act.   6 
White,  Horace,  3,  12 
White,  Sir  Thomas,  85-86 
Wholesalers,    See    Manufacturers    and 

Wholesalers 
WlUa,   Safeguarding  the  bank  in  eu- 

tomers',    247 


THE- PLIMPTON .ptESS 

WOBWOOD-liASS-U-S-A 


